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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended April 5, 2009



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to
            .

Commission File Number 333-153362





GIGOPTIX, INC.

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 26-2439072                          
|(State or Other Jurisdiction of Incorporation or organization) |  | (I.R.S. Employer Identification No.)

2400 Geng Road, Palo Alto, CA 94301

(Address of Principal Executive Offices)

(650) 424-1937

(Registrants telephone number, including area code)





Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (do not check if a smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):    Yes   ̈    No  x.

As of May 18, 2009, 5,173,215 shares of the Companys common stock, $0.001 par value, were outstanding.









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##### Table of Contents

|                                                                                                            |  |     
|----------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                            |  | Page
|PART I FINANCIAL INFORMATION                                                                                |  |     
|                                                                                                            | 
|Item 1 - Financial Statements (unaudited)                                                                   |  |     
|                                                                                                            | 
|Condensed Consolidated Balance Sheets as of April 5, 2009 and December 31, 2008                             |  | 3   
|                                                                                                            | 
|Condensed Consolidated Statements of Operations for the three months ended April 5, 2009 and March 28, 2008 |  | 4   
|                                                                                                            | 
|Condensed Consolidated Statements of Cash Flows for the three months ended April 5, 2009 and March 28, 2008 |  | 5   
|                                                                                                            | 
|Notes to Condensed Consolidated Financial Statements                                                        |  | 6   
|                                                                                                            | 
|Item 2 - Managements Discussion and Analysis of Financial Condition and Results of
Operations              |  | 17  
|                                                                                                            | 
|Item 4T - Controls and Procedures                                                                           |  | 22  
|                                                                                                            | 
|PART II OTHER INFORMATION                                                                                   |  |     
|                                                                                                            | 
|Item 1 - Legal Proceedings                                                                                  |  | 22  
|                                                                                                            | 
|Item 1A - Risk Factors                                                                                      |  | 22  
|                                                                                                            | 
|Item 5 - Other Information                                                                                  |  | 30  
|                                                                                                            | 
|Item 6 - Exhibits                                                                                           |  | 30  



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PART I

FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

GIGOPTIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)



|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                               |  | April 5,2009 |         |   | December 31,2008 |  
|ASSETS                                                                                                                                                         |  |              |         |   |                  |   |         |  
|Current assets:                                                                                                                                                |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                      |  | $            | 4,644   |   |                  | $ | 6,871   |  
|Accounts receivable, net                                                                                                                                       |  |              | 3,000   |   |                  |   | 2,475   |  
|Inventories                                                                                                                                                    |  |              | 984     |   |                  |   | 1,019   |  
|Prepaid and other current assets                                                                                                                               |  |              | 1,195   |   |                  |   | 1,043   |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                                           |  |              | 9,823   |   |                  |   | 11,408  |  
|Property and equipment, net                                                                                                                                    |  |              | 810     |   |                  |   | 771     |  
|Intangible assets, net                                                                                                                                         |  |              | 1,051   |   |                  |   | 1,231   |  
|Restricted cash                                                                                                                                                |  |              | 745     |   |                  |   | 749     |  
|Other assets                                                                                                                                                   |  |              | 582     |   |                  |   | 712     |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                                   |  | $            | 13,011  |   |                  | $ | 14,871  |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                           |  |              |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                           |  |              |         |   |                  |   |         |  
|Accounts payable                                                                                                                                               |  | $            | 1,225   |   |                  | $ | 1,496   |  
|Accrued and other current liabilities                                                                                                                          |  |              | 2,229   |   |                  |   | 2,472   |  
|Line of credit                                                                                                                                                 |  |              | 503     |   |                  |   | 800     |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                      |  |              | 3,957   |   |                  |   | 4,768   |  
|Pension liabilities                                                                                                                                            |  |              | 161     |   |                  |   | 173     |  
|Deferred tax liabilities                                                                                                                                       |  |              | 81      |   |                  |   | 118     |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|Total liabilities                                                                                                                                              |  |              | 4,199   |   |                  |   | 5,059   |  
|Commitments and contingencies (Note 10)                                                                                                                        |  |              |         |   |                  |   |         |  
|Stockholders Equity                                                                                                                                           |  |              |         |   |                  |   |         |  
|                                                                                                                                                               |  |             
|Preferred stock, $0.001 par value; 1,000,000 shares authorized as of April 5, 2009; no shares issued and outstanding as of April 5,
2009 and December 31, 2008 |  |              |        |   |                  |   |        |  
|                                                                                                                                                               |  |             
|Common stock, $0.001 par value; 50,000,000 shares authorized as of April 5, 2009; 5,173,223 issued and outstanding as of April 5,
2009 and December 31, 2008   |  |              | 5       |   |                  |   | 5       |  
|Additional paid-in capital                                                                                                                                     |  |              | 68,717  |   |                  |   | 68,576  |  
|Accumulated deficit                                                                                                                                            |  |              | (59,967 | ) |                  |   | (58,952 | )
|Accumulated other comprehensive income                                                                                                                         |  |              | 57      |   |                  |   | 183     |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                     |  |              | 8,812   |   |                  |   | 9,812   |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                     |  | $            | 13,011  |   |                  | $ | 14,871  |  
|                                                                                                                                                               |  |              |         |   |                  |   |         |  

See accompanying notes to condensed consolidated financial statements.



3



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GIGOPTIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per
share amounts)

(Unaudited)



|                                                                                     |  |                    |        |   |               |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                                                                     |  | Three months ended |       
|                                                                                     |  | April 5,2009       |        |   | March 28,2008 |  
|Revenue                                                                              |  |                    |        |   |               |   |        |  
|Product                                                                              |  | $                  | 2,477  |   |               | $ | 1,683  |  
|Government contract                                                                  |  |                    | 1,617  |   |               |   |       |  
|                                                                                     |  |                    |        |   |               |   |        |  
|Total revenue                                                                        |  |                    | 4,094  |   |               |   | 1,683  |  
|Cost of revenue                                                                      |  |                    |        |   |               |   |        |  
|Product                                                                              |  |                    | 1,160  |   |               |   | 1,034  |  
|Government contract                                                                  |  |                    | 580    |   |               |   |       |  
|                                                                                     |  |                    |        |   |               |   |        |  
|Total cost of revenue                                                                |  |                    | 1,740  |   |               |   | 1,034  |  
|                                                                                     |  |                    |        |   |               |   |        |  
|Gross profit                                                                         |  |                    | 2,355  |   |               |   | 649    |  
|                                                                                     |  |                    |        |   |               |   |        |  
|Research and development expense                                                     |  |                    | 1,499  |   |               |   | 1,013  |  
|Selling, general and administrative expense                                          |  |                    | 2,285  |   |               |   | 1,274  |  
|Acquired in-process research and development                                         |  |                    |       |   |               |   | 319    |  
|                                                                                     |  |                    |        |   |               |   |        |  
|Total operating expenses                                                             |  |                    | 3,784  |   |               |   | 2,606  |  
|                                                                                     |  |                    |        |   |               |   |        |  
|Loss from operations                                                                 |  |                    | (1,429 | ) |               |   | (1,957 | )
|Interest income (expense), net                                                       |  |                    | 2      |   |               |   | (78    | )
|Other income (expense), net                                                          |  |                    | 336    |   |               |   | (166   | )
|                                                                                     |  |                    |        |   |               |   |        |  
|Loss before benefit from income taxes                                                |  |                    | (1,091 | ) |               |   | (2,201 | )
|Benefit from income taxes                                                            |  |                    | 77     |   |               |   | 93     |  
|                                                                                     |  |                    |        |   |               |   |        |  
|Net loss                                                                             |  | $                  | (1,015 | ) |               | $ | (2,108 | )
|                                                                                     |  |                    |        |   |               |   |        |  
|                                                                                     |  |                   
|Net loss per share - basic and diluted                                               |  | $                  | (0.20  | ) |               | $ | (2.84  | )
|                                                                                     |  |                    |        |   |               |   |        |  
|Weighted average number of shares used in per share calculations - basic and diluted |  |                    | 5,173  |   |               |   | 743    |  
|                                                                                     |  |                    |        |   |               |   |        |  

See accompanying notes to condensed consolidated financial statements.



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GIGOPTIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                           |  |                    |        |   |               |   |        |  
|-------------------------------------------------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                                                           |  | Three months ended |       
|                                                                           |  | April 5,2009       |        |   | March 28,2008 |  
|Cash flows from operating activities                                       |  |                    |        |   |               |   |        |  
|Net loss                                                                   |  | $                  | (1,015 | ) |               | $ | (2,108 | )
|Adjustments to reconcile net loss to net cash used in operating activities |  |                    |        |   |               |   |        |  
|Depreciation and amortization                                              |  |                    | 237    |   |               |   | 198    |  
|Stock-based compensation                                                   |  |                    | 140    |   |               |   | 12     |  
|Acquired in-process research and development                               |  |                    |       |   |               |   | 319    |  
|Deferred taxes, net                                                        |  |                    | (37    | ) |               |   | (52    | )
|Amortization of acquisition-related payment                                |  |                    | 175    |   |               |   | 175    |  
|Gain on sale of assets                                                     |  |                    | (300   | ) |               |   |       |  
|Acquisition-related retention payment                                      |  |                    |       |   |               |   | (2,000 | )
|Changes in operating assets and liabilities, net of acquisition:           |  |                    |        |   |               |   |        |  
|Accounts receivable, net                                                   |  |                    | (544   | ) |               |   | (196   | )
|Inventories                                                                |  |                    | 12     |   |               |   | 69     |  
|Prepaid and other current assets                                           |  |                    | (329   | ) |               |   | (113   | )
|Other assets                                                               |  |                    | 99     |   |               |   | 60     |  
|Accounts payable                                                           |  |                    | (261   | ) |               |   | 375    |  
|Accrued and other current liabilities                                      |  |                    | (235   | ) |               |   | (393   | )
|                                                                           |  |                    |        |   |               |   |        |  
|Net cash used in operating activities                                      |  |                    | (2,058 | ) |               |   | (3,654 | )
|                                                                           |  |                    |        |   |               |   |        |  
|Cash flows from investing activities                                       |  |                    |        |   |               |   |        |  
|Purchases of property and equipment                                        |  |                    | (166   | ) |               |   | (2     | )
|Proceeds from sale of assets                                               |  |                    | 300    |   |               |   |       |  
|Cash paid for acquisition, net of cash acquired                            |  |                    |       |   |               |   | (1,671 | )
|                                                                           |  |                    |        |   |               |   |        |  
|Net cash provided by (used in) investing activities                        |  |                    | 134    |   |               |   | (1,673 | )
|                                                                           |  |                    |        |   |               |   |        |  
|Cash flows from financing activities                                       |  |                    |        |   |               |   |        |  
|Proceeds from notes payable to stockholders                                |  |                    |       |   |               |   | 5,450  |  
|Repayment of notes payable to stockholders                                 |  |                    |       |   |               |   | (700   | )
|Proceeds from line of credit                                               |  |                    | 792    |   |               |   | 1,240  |  
|Repayment of line of credit                                                |  |                    | (1,092 | ) |               |   | (709   | )
|                                                                           |  |                    |        |   |               |   |        |  
|Net cash provided by financing activities                                  |  |                    | (300   | ) |               |   | 5,281  |  
|                                                                           |  |                    |        |   |               |   |        |  
|Effect of exchange rates on cash and cash equivalents                      |  |                    | (3     | ) |               |   | 58     |  
|Net increase (decrease) in cash and cash equivalents                       |  |                    | (2,227 | ) |               |   | 12     |  
|Cash and Cash equivalents at beginning of period                           |  |                    | 6,871  |   |               |   | 525    |  
|                                                                           |  |                    |        |   |               |   |        |  
|Cash and Cash equivalents at end of period                                 |  | $                  | 4,644  |   |               | $ | 537    |  
|                                                                           |  |                    |        |   |               |   |        |  
|                                                                           |  |                   
|Supplemental disclosure of cash flow information                           |  |                    |        |   |               |   |        |  
|Interest paid                                                              |  | $                  | 6      |   |               | $ | 83     |  
|                                                                           |  |                    |        |   |               |   |        |  

See accompanying notes to condensed consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION

Organization

GigOptix, Inc. (GigOptix or the Company) is a leading provider of electronic engines
for the optically connected digital world and other advanced RF applications. GigOptix was formed in March 2008 as a wholly-owned subsidiary of Lumera Corporation to facilitate a combination between GigOptix LLC and Lumera Corporation. Before the
combination, which was effected by two mergers, collectively referred to as the merger, GigOptix had no operations or material assets. As a result of the transaction set forth in the Agreement and Plan of Merger, dated as of
March 27, 2008, among Lumera, GigOptix LLC, Galileo Merger Sub G, LLC and Galileo Merger Sub L, Inc., on December 9, 2008, the merger was completed and Lumera and GigOptix LLC became wholly owned subsidiaries of GigOptix. GigOptix is the
successor public registrant to Lumera Corporation.

At the time of the merger, Lumera was a developer of high performance proprietary
electro-optic polymer materials and products based on these materials for various electro-optic applications and GigOptix LLC was a fabless semiconductor company specializing in the specification, design, development and sale of integrated circuits
and electronic multi-chip module solutions.

Prior to the merger, GigOptix LLC was an Idaho limited liability company, headquartered in
Palo Alto, California. GigOptix LLC was the successor company of iTerra Communications LLC, or iTerra, which was founded in 2000. In July 2007, as part of a reorganization plan, iTerra formed GigOptix LLC, a wholly-owned subsidiary. All of the
assets and liabilities of iTerra, with the exception of the $45.8 million of debt and accrued interest due to iTerras primary member, were transferred to GigOptix LLC, along with all of iTerras operations and intellectual property.

In August 2007, GigOptix LLC implemented a restructuring plan to consolidate the research and development operations of its wholly-owned
subsidiary, iTerra Communications SRL, based in Rome, Italy to its corporate headquarters in Palo Alto, California.

In January 2008,
GigOptix LLC acquired Helix AG, or Helix, a company based in Switzerland, which designed and sold optical receiver transmitter array products consisting of driver and receiver arrays for 4-channel and 12-channel modules running at 3Gbps to
10Gbps per channel. The acquisition of Helix enabled GigOptix LLC to expand its product offering into short reach devices and systems.

Going
Concern

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a
going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company has incurred significant losses since inception, attributable to its efforts to design and commercialize its
products. During the first quarter of fiscal year 2009, the Company incurred a loss of approximately $1.0 million, cash outflows from operations of $2.1 million and at April 5, 2009 had an accumulated deficit of $60.0 million. For the years
ended December 31, 2008 and 2007, the Company incurred net losses of $7.7 million and $6.5 million, respectively, and cash outflows from operations of $6.7 million and $4.8 million, respectively. The Company has managed its liquidity during
this time through a series of cost reduction initiatives and increases in the Companys line of credit with Silicon Valley Bank. The line was fully paid down subsequent to April 5, 2009 and terminated on April 15, 2009.

The Companys ability to continue as a going concern is dependent on many events outside of its direct control, including, among other things;
obtaining additional financing either privately or through public markets and consumers purchasing its products in substantially higher volumes. The Companys significant recent operating losses and negative cash flows, among other
factors, raise substantial doubt as to its ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Presentation

In the opinion of management,
the accompanying unaudited condensed consolidated financial statements contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position and results of operations of the Company. You should not
expect interim results of operations necessarily to be indicative of the results for the full fiscal year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
us to make estimates and assumptions that affect the amounts reported in these unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. This report should be read in conjunction
with the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended December 31, 2008.

The Companys fiscal year ends on December 31. For quarterly reporting, the Company employs a four-week, four-week, five-week reporting period. The current three-month period ended on Sunday, April 5,
2009. The first quarter of fiscal 2008 ended on March 28, 2008. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated.

The condensed consolidated financial statements of the Company for the periods prior to December 9, 2008, presented
herein, are the historical financial statements of GigOptix LLC.

Merger Conversion

On December 9, 2008, the effective time of merger, GigOptix LLC membership units were converted into common stock of GigOptix, Inc. at a conversion
ratio of 0.1375. All shares and per share amounts, including all common stock equivalents (stock options, warrants and restricted stock units) have been adjusted in the condensed consolidated financial statements and in the notes to the condensed
consolidated financial statements for all periods presented to reflect the merger conversion.



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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in United States requires management to make estimates, judgments and assumptions that affect
the reported amount of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts,
inventory write-downs, valuation of long-lived assets, including property and equipment and identified intangible assets, valuation of deferred taxes and contingencies. In addition, the Company uses assumptions when employing the Black-Scholes
option valuation model to calculate the fair value of stock granted. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Revenue from sales of optical modulator drivers and receivers, MCMS, and other products is recognized in accordance with Staff Accounting Bulletin
No. 104, Revenue Recognition when persuasive evidence of a sales arrangement exists, transfer of title and acceptance, where applicable, occurs, the sales price is fixed or determinable and collection of the resulting receivable is
reasonably assured. Revenue for product shipments is recognized upon acceptance of the product by the customer or expiration of the contractual acceptance period, after which there are no rights of return. Provisions are made for warranties at the
time revenue is recorded.

Customer purchase orders are generally used to determine the existence of an arrangement. Transfer of title and
risk of ownership occur based on defined terms in customer purchase orders, and generally pass to the customer upon shipment, at which point goods are delivered to a carrier. There are no formal customer acceptance terms or further obligations,
outside of the Companys standard product warranty. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction. Collectability is assessed based primarily on the credit
worthiness of the customer as determined through ongoing credit evaluations of the customers financial condition, as well as consideration of the customers payment history.

Revenue generated from engineering product development projects and the research and development cost reimbursement contracts, cost plus fixed fee type
contracts, for the United States government is recorded in accordance with AICPA Statement of Position 81-1, Accounting for Performance of Construction Type and Certain Product Type Contracts, using the percentage of completion method
measured on a cost-incurred basis. Changes in contract performance, contract conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and
revenues and are recognized in the period in which the revisions are determined. Profit incentives are included in revenue when realization is assured. Losses, if any, are recognized in full as soon as identified. Losses occur when the estimated
direct and indirect costs to complete the contract exceed the unrecognized revenue on the contract. The Company evaluates the reserve for contract losses on a contract-by-contract basis. No losses have been incurred on any contracts to date.

Unbilled accounts receivables, included as a component of accounts receivable on the balance sheet, comprises amounts of revenue
recognized on contracts that the Company has not yet billed to a customer because the amounts were not contractually billable at the balance sheet date. Historically, the Company has been contractually able to bill 93% of the unbilled accounts
receivable balances within 45 days of the respective balance sheet date.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable.
The Company maintains cash with various financial institutions that management believes to be of high credit quality. At any time, amounts held at any single financial institution may exceed federally insured limits. The Company believes that the
concentration of credit risk in its accounts receivable is substantially mitigated by the Companys credit evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs
ongoing credit evaluations of its customers financial condition and limits the amount of credit extended when deemed necessary but generally requires no collateral.

As of April 5, 2009, four customers accounted for 17%, 16%, 11% and 11% of total accounts receivable. As of December 31, 2008, four customers accounted for 17%, 16%, 12% and 10% of total accounts receivable.

For the three months ended April 5, 2009, four customers accounted for 18%, 17%, 11% and 10% of revenue. For the three months ended
March 28, 2008, three customers accounted for 29%, 25% and 11% of revenue.

Comprehensive Loss

Comprehensive loss includes net loss and foreign currency translation adjustments arising from the consolidation of the Companys foreign subsidiary.
The components of comprehensive loss are as follows:



|                                        |  |                    |        |   |               |   |        |  
|--------------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                        |  | Three months ended |       
|                                        |  | April 5,2009       |        |   | March 28,2008 |  
|                                        |  | (In thousands)     |       
|Net loss                                |  | $                  | (1,015 | ) |               | $ | (2,108 | )
|Foreign currency translation adjustment |  |                    | 57     |   |               |   | 166    |  
|                                        |  |                    |        |   |               |   |        |  
|Comprehensive loss                      |  | $                  | (958   | ) |               | $ | (1,942 | )
|                                        |  |                    |        |   |               |   |        |  



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Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of
assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial
and tax basis of the Companys assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized.

The Company has not provided for U.S. income taxes and foreign withholding taxes on undistributed earnings
for certain non-U.S. subsidiaries as of April 5, 2009. The Company intends to reinvest these earnings indefinitely in operations outside the United States. These earnings include 100% of the accumulated undistributed earnings of the Companys
subsidiary in Switzerland.

The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax
regulations. The Company recognizes potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts
ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. If the estimate of tax liabilities proves to be
less than the ultimate assessment, a further charge to expense would result.

The Company adopted the provisions of FIN 48 effective
December 9, 2008, the date of the merger with Lumera Corporation, resulting in no cumulative effect of accounting change. There were no significant adjustments during the periods ended April 5, 2009 and December 31, 2008 related to
the Companys adoption of FIN 48.

NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. 157-4, Determining
Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP No. 157-4). FSP No. 157-4 provides guidance on how to determine the
fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In
addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. FSP 157-4 is effective for the Company beginning
in the second quarter of fiscal year 2009. The adoption of FSP No. 157-4 is not expected to have a significant impact on the Companys condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary
Impairment (FSP No. 115-2/124-2). FSP No. 115-2/124-2 amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing intent and
ability indicator. Under FSP 115-2/124-2, an other-than-temporary impairment is triggered when there is intent to sell the security, it is more likely than not that the security will be required to be sold before recovery, or the security
is not expected to recover the entire amortized cost basis of the security. Additionally, FSP No. 115-2/124-2 changes the presentation of an other-than-temporary impairment in the statement of operations for those impairments involving credit
losses. The credit loss component will be recognized in earnings and the remainder of the impairment will be recorded in other comprehensive income. FSP No. 115-2/124-2 is effective for the Company beginning in the second quarter of fiscal year
2009. The adoption of FSP No. 115-2/124-2 is not expected to have a significant impact on the Companys condensed consolidated financial statements.

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Cash Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),which requires issuers of convertible debt
that may be settled wholly or partly in cash when converted to account for the debt and equity components separately in a manner that reflects the issuers nonconvertible debt borrowing rate. FSP APB 14-1 was effective for fiscal years
beginning after December 15, 2008, and must be applied retrospectively to all periods presented. The Company adopted FSP APB 14-1 in the quarter ended April 5, 2009, but as its previously outstanding convertible notes were not able to be
settled in cash or other assets upon conversion, the adoption had no significant impact on the Companys condensed consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.FSP EITF 03-6-1 clarifies that all outstanding
unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing
basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. Effective January 1, 2009, the Company adopted EITF 03-6-1 and this adoption did not have a
material impact on its condensed consolidated financial statements.

In April 2008, the FASB issued FSP No. 142-3, Determination of
the Useful Life of Intangible Assets, (FSP 142-3) that amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement of Financial
Accounting Standards (SFAS) SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). FSP 142-3 requires a consistent approach between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of an asset under SFAS No. 141 (R), Business Combinations (SFAS 141(R)). The FSP also requires enhanced disclosures when an intangible
assets expected future cash flows are affected by an entitys intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is
applied prospectively. Early adoption is prohibited. The Company adopted FSP 142-3 effective January 1, 2009, and this adoption did not have a material impact on its condensed consolidated financial statements.

In February 2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157 (FSP No. 157-2), which delays
the effective date of SFAS No. 157, Fair Value Measurements, for all non-recurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. Effective
January 1, 2009, the Company adopted FSP FAS No. 157-2. The adoption of FSP FAS 157-2 did not have a material impact to its condensed consolidated financial statements.



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In December 2007, the FASB issued SFAS No. 141(R), which establishes the principles and
requirements for how an acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, (2) recognizes
and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the
business combination. In April 2009, the FASB issued FSP FAS 141(R)-1, which amends the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business
combination. SFAS No. 141(R) and FSP FAS 141(R)-1 are effective beginning in the quarter ended April 5, 2009 and the Companys adoption had no significant impact on the Companys condensed consolidated financial statements. The
impact of the adoption in subsequent quarters will depend on the nature and extent of business combinations that the Company completes, if any, in or after fiscal 2009; however, it is expected to change the Companys accounting treatment for
any future business combinations.

NOTE 4  BALANCE SHEET COMPONENTS

Accounts receivable, net

Accounts receivable balances as of April 5, 2009 and December 31,
2008 consist of the following:



|                                |  |                |       |   |                  |   |       |  
|------------------------------- |  | -------------- | ----- | - | ---------------- | - | ----- | -
|                                |  | April 5,2009   |       |   | December 31,2008 |  
|                                |  | (In thousands) |      
|Billed accounts receivable      |  | $              | 2,131 |   |                  | $ | 2,014 |  
|Unbilled accounts receivable    |  |                | 877   |   |                  |   | 469   |  
|Allowance for doubtful accounts |  |                | (8    | ) |                  |   | (8    | )
|                                |  |                |       |   |                  |   |       |  
|                                |  | $              | 3,000 |   |                  | $ | 2,475 |  
|                                |  |                |       |   |                  |   |       |  

Inventories

Inventory balances as of April 5, 2009 and December 31, 2008 consist of the following:



|                |  |                |     |                  |   |      
|--------------- |  | -------------- | --- | ---------------- | - | -----
|                |  | April 5,2009   |     | December 31,2008
|                |  | (In thousands)
|Raw materials   |  | $              | 518 |                  | $ | 670  
|Work in process |  |                | 107 |                  |   | 147  
|Finished goods  |  |                | 359 |                  |   | 202  
|                |  |                |     |                  |   |      
|                |  | $              | 984 |                  | $ | 1,019
|                |  |                |     |                  |   |      

Prepaid and other current assets

Prepaid and other current assets balances as of April 5, 2009 and December 31, 2008 consist of the following:



|                                           |  |                |       |                  |   |      
|------------------------------------------ |  | -------------- | ----- | ---------------- | - | -----
|                                           |  | April 5,2009   |       | December 31,2008
|                                           |  | (In thousands)
|Prepaid expenses                           |  | $              | 446   |                  | $ |     
|Prepayment related to continued employment |  |                | 675   |                  |   | 700  
|Prepaid licenses                           |  |                | 25    |                  |   |     
|Other                                      |  |                | 49    |                  |   | 343  
|                                           |  |                |       |                  |   |      
|                                           |  | $              | 1,195 |                  | $ | 1,043
|                                           |  |                |       |                  |   |      

Property and equipment

Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets (two to five years) using the straight-line method. Leasehold improvements are depreciated over the
shorter of estimated useful lives or the initial lease term. When fixed assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts and the resulting gains or losses are included
in income from operations.



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##### Table of Contents

A summary of property and equipment at April 5, 2009 and December 31, 2008 is follows:



|                                          |  |                |        |   |                  |   |        |  
|----------------------------------------- |  | -------------- | ------ | - | ---------------- | - | ------ | -
|                                          |  | April 5,2009   |        |   | December 31,2008 |  
|                                          |  | (In thousands) |       
|Network and laboratory equipment          |  | $              | 4,058  |   |                  | $ | 3,910  |  
|Computer software equipment               |  |                | 272    |   |                  |   | 272    |  
|Furniture and fixtures                    |  |                | 185    |   |                  |   | 185    |  
|Leasehold Improvements                    |  |                | 44     |   |                  |   | 38     |  
|Construction-in-progress                  |  |                | 13     |   |                  |   | 13     |  
|                                          |  |                |        |   |                  |   |        |  
|                                          |  | $              | 4,572  |   |                  | $ | 4,418  |  
|Accumulated depreciation and amortization |  |                | (3,762 | ) |                  |   | (3,647 | )
|                                          |  |                |        |   |                  |   |        |  
|Property, and equipment, net              |  | $              | 810    |   |                  | $ | 771    |  
|                                          |  |                |        |   |                  |   |        |  

Depreciation and amortization expense related to property and equipment was $115,000 and $59,000
for the quarters ended April 5, 2009 and March 28, 2008, respectively.

Intangible assets, net

Finite-lived intangible assets are recorded at cost, less accumulated amortization. Finite-lived intangible assets as of April 5, 2009 and
December 31, 2008 consisted of the following:



|                        |  |               |       |                         |   |      |                |  |       |       |                         |   |       |     |   |      |   |  |   |      
|----------------------- |  | ------------- | ----- | ----------------------- | - | ---- | -------------- |  | ----- | ----- | ----------------------- | - | ----- | --- | - | ---- | - |  | - | -----
|                        |  | April 5, 2009 |       | December 31, 2008      
|                        |  | Gross         |       | AccumulatedAmortization |   |      | Net            |  | Gross |       | AccumulatedAmortization |   |       | Net
|                        |  |               |       |                         |   |      | (In thousands) |  |       |       |                         |  
|Existing technology     |  | $             | 1,115 |                         | $ | (487 | )              |  | $     | 628   |                         | $ | 1,167 |     | $ | (396 | ) |  | $ | 771  
|Order backlog           |  |               | 167   |                         |   | (167 | )              |  |       |      |                         |   | 167   |     |   | (167 | ) |  | $ |     
|Customer relationships  |  |               | 124   |                         |   | (54  | )              |  |       | 70    |                         |   | 130   |     |   | (44  | ) |  | $ | 86   
|Patents                 |  |               | 377   |                         |   | (23  | )              |  |       | 353   |                         |   | 377   |     |   | (3   | ) |  | $ | 374  
|                        |  |               |       |                         |   |      |                |  |       |       |                         |   |       |     |   |      |   |  |   |      
|Total intangible assets |  | $             | 1,783 |                         | $ | (731 | )              |  | $     | 1,051 |                         | $ | 1,841 |     | $ | (610 | ) |  | $ | 1,231
|                        |  |               |       |                         |   |      |                |  |       |       |                         |   |       |     |   |      |   |  |   |      

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated
lives of finite-lived intangibles range from five to ten years. Total amortization expense for the three-month periods ended April 5, 2009 and March 28, 2008 was $121,000 and $143,000, respectively.

The estimated future amortization expense as of April 5, 2009 is as follows (in thousands):



|                             |  |                |      
|---------------------------- |  | -------------- | -----
|                             |  | Amount        
|Years ending December 31,    |  | (In thousands)
|2009 (remaining nine months) |  | $              | 355  
|2010                         |  |                | 475  
|2011                         |  |                | 75   
|2012                         |  |                | 75   
|2013                         |  |                | 71   
|                             |  |                |      
|                             |  | $              | 1,051
|                             |  |                |      

Accrued and other current liabilities

Accrued and other current liabilities consist of the following (in thousands):



|                                        |  |                |       |                  |   |      
|--------------------------------------- |  | -------------- | ----- | ---------------- | - | -----
|                                        |  | April 5,2009   |       | December 31,2008
|                                        |  | (In thousands)
|Accrued legal and professional services |  | $              | 694   |                  | $ | 1,043
|Accrued compensation and related taxes  |  |                | 697   |                  |   | 536  
|Sales tax payable                       |  |                | 376   |                  |   | 380  
|Warranty accrual                        |  |                | 61    |                  |   | 120  
|Short-term deferred tax liabilities     |  |                | 16    |                  |   | 15   
|Other                                   |  |                | 385   |                  |   | 378  
|                                        |  |                |       |                  |   |      
|                                        |  | $              | 2,229 |                  | $ | 2,472
|                                        |  |                |       |                  |   |      



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NOTE 5  LINE OF CREDIT

At April 5, 2009, the Company maintained a short-term line of credit under which it could borrow up to $0.8 million, based on net eligible accounts receivable. Borrowings under the line of credit bear interest at
the banks prime rate plus 1.25% (5.25% as of April 5, 2009 and December 31, 2008). The line of credit was available through April 15, 2009. Borrowings under the line of credit were collateralized by a security interest in all of
the Companys assets. The line of credit also required the Company to be in compliance with certain financial covenants, of which it was in compliance as of April 5, 2009. On April 15, 2009, the line of credit was fully paid down and
terminated.

NOTE 6  STOCKHOLDERS EQUITY

Common and Preferred Stock

In December 2008, the Companys stockholders approved an amendment to the Certificate of
Incorporation to authorize 50,000,000 shares of common stock of par value $0.001 per share. In addition, the Company is authorized to issue 1,000,000 shares of undesignated preferred stock of $0.001 par value per share, for which the Board of
Directors is authorized to fix the designation, powers, preferences and rights. As of April 5, 2009, there were no shares of preferred stock issued or outstanding.

Equity Incentive Plans

As of April 5, 2009, there were 3,074,929 options, 54,629 unvested
restricted stock units and 1,450,336 warrants outstanding under all stock incentive plans.

2007 Equity Incentive Plan

In August 2007, GigOptix LLC adopted the GigOptix LLC Equity Incentive Plan, or the 2007 Plan. The 2007 Plan provides for grants of options to purchase
stock units, stock awards and restricted stock units to employees, officers and non-employee directors. The 2007 Plan provides for grants of up to 632,500 stock units. Vesting periods are determined by the Companys Board of Directors and
generally provide for stock options to vest over a four-year period and expire ten years from date of grant. Vesting for certain stock unit grants are contingent upon both service and performance criteria. The 2007 Plan was terminated upon the
completion of the merger with Lumera on December 9, 2008 and the remaining 864 stock options not granted under the 2007 Plan were cancelled. No shares of the Companys common stock remain reserved for issuance under the 2007 Plan other
than for satisfying exercises of stock options granted under this plan prior to its termination.

As of April 5, 2009, no shares of
common stock were reserved for issuance under the 2007 Plan and options to purchase a total of 571,071 shares of common stock, 54,629 unvested restricted stock units and 4,125 warrants to purchase common stock were outstanding.

2008 Equity Incentive Plan

In December 2008, the
Company adopted the 2008 Equity Incentive Plan, or the 2008 Plan, for directors, employees, consultants and advisors to the Company or its affiliates. Under the 2008 Plan, 2,500,000 shares of common stock were reserved for issuance upon the
completion of merger with Lumera on December 9, 2008. On January 1 of each year, starting in 2009, the aggregate number of shares reserved for issuance under the 2008 Plan increase automatically by the lesser of (i) 5% of the number
of shares of common stock outstanding as of the Companys immediately preceding fiscal year, or (ii) a number of shares determined by the Board of Directors. During the quarter ended April 5, 2009, the Board of Directors determined
that no additional reserved shares were needed and the maximum number of shares of common stock to be granted is up to 21,000,000 shares. Forfeited options or awards generally become available for future awards.

Awards under the 2008 Plan may be granted through June 30, 2018. Under the 2008 Plan, the exercise price of (i) an award is at least 100% of
the stocks fair market value on the date of grant, and (ii) an incentive stock option granted to a 10% stockholder is at least 110% of the stocks fair market value on the date of grant. Vesting periods for awards are determined by
the chief executive officer and generally provide for stock options to vest over a four-year period and have a maximum life of ten years from the date of grant. As of April 5, 2009, 2,271,129 options to purchase common stock were outstanding
and 228,821 options were available for grant under the 2008 Plan.

Lumera 2000 and 2004 Stock Option Plan

In December 2008, in connection with the merger with Lumera, the Company assumed the existing Lumera Corporation 2000 Equity Incentive Plan, and the
Lumera Corporation 2004 Stock Option Plan (the Lumera Plan). All unvested options granted under the Lumera Plan were assumed by the Company as part of the merger. All contractual terms of the assumed options remain the same, except for
the converted number of shares and exercise price based on merger conversion ratio of 0.125. As of April 5, 2009, no additional options can be granted under the Lumera Plan and options to purchase a total of 229,334 shares of common stock were
outstanding.

NOTE 7  STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation costs under the provisions of SFAS No. 123(R), Share-Based Payment, (FAS 123R) Staff Accounting Bulletin No. 107 (SAB 107) and
Staff Accounting Bulletin No. 110 (SAB 110).

The following table summarizes the classification of stock-based
compensation expense related to employee stock option and restricted stock unit grants, including the impact of expected forfeitures recorded in the three months ended April 5, 2009 and March 28, 2008:



|                                            |  |                    |     |               |   |   
|------------------------------------------- |  | ------------------ | --- | ------------- | - | --
|                                            |  | Three months ended
|                                            |  | April 5,2009       |     | March 28,2008
|                                            |  | (In thousands)    
|Research and development expense            |  | $                  | 43  |               | $ | 12
|Selling, general and administrative expense |  |                    | 97  |               |   |  
|                                            |  |                    |     |               |   |   
|                                            |  | $                  | 140 |               | $ | 12
|                                            |  |                    |     |               |   |   



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No tax benefit was recognized related to stock-based compensation expense since the Company has never
reported taxable income and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets. Additionally, no stock-based compensation costs were capitalized during the periods
presented.

Valuation assumptionsThe Company uses the Black-Scholes option pricing model in determining the fair value of
employee stock options, employing the following key assumptions during each respective period:



|                            |  |                    |         |   |               |   |         |  
|--------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                            |  | Three months ended |        
|                            |  | April 5,2009       |         |   | March 28,2008 |  
|Expected life               |  |                    | 5 years |   |               |   | 5 years |  
|Expected volatility         |  |                    | 74.70   | % |               |   | 53.60   | %
|Risk free interest rate     |  |                    | 1.4     | % |               |   | 3.0     | %
|Expected dividends          |  |                    |        |   |               |   |        |  
|Weighted-average fair value |  | $                  | 0.58    |   |               | $ | 0.36    |  

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The
Company does not anticipate declaring dividends in the foreseeable future. The expected term of the option is based on the vesting terms of the respective option and a contractual life of ten years using the simplified method calculation as defined
by SAB 107 and permitted by SAB 110. Expected volatility is determined by blending the annualized daily historical volatility of the Companys stock price commensurate with the expected life of the option with volatility measures used by
comparable peer companies. The Companys estimated forfeiture rate is 12.6% for the quarter ended April 5, 2009 and for the quarter ended March 28, 2008. The Companys stock price volatility and option lives involve
managements best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option.

The following table summarizes the activity for employees under the Companys stock option plans for the three months ended April 5, 2009:



|                               |  |                    |   |  |                               |      
|------------------------------ |  | ------------------ | - |  | ----------------------------- | -----
|                               |  | Three months ended
|                               |  | April 5, 2009     
|                               |  | Shares             |   |  | WeightedAverageExercise Price
|Outstanding, December 31, 2008 |  | 2,827,470          |   |  | $                             | 3.91 
|Granted                        |  | 276,016            |   |  | $                             | 0.95 
|Forfeited/Expired              |  | (31,902            | ) |  | $                             | 14.15
|                               |  |                    |   |  |                               |      
|Outstanding, April 5, 2009     |  | 3,071,584          |   |  | $                             | 3.54 
|                               |  |                    |   |  |                               |      
|Exercisable, April 5, 2009     |  | 635,337            |   |  | $                             | 10.62
|                               |  |                    |   |  |                               |      

The weighted average grant date fair value of options granted was $0.58 and $0.36 per share during
the three months ended April 5, 2009 and March 28, 2008, respectively. There were no options exercised during the three months ended April 5, 2009. The aggregate intrinsic value of employee stock options outstanding as of
April 5, 2009 was approximately $1.4 million.

As of April 5, 2009, there was approximately $1.4 million, net of estimated
forfeitures, of total unrecognized compensation cost, the majority of which will be recognized over a remaining requisite service period of 4 years.

Restricted Stock Units

The fair value of the Companys restricted stock units is calculated based upon the fair market
value of the Companys underlying stock at the date of grant. As of April 5, 2009, there were restricted stock units for 54,629 shares of our common stock outstanding with an unrecognized stock-based compensation cost of approximately
$250,000 to be recognized as compensation expense over a weighted average period of nine months. There was no activity related to restricted stock units in the three months ended April 5, 2009.

NOTE 8  INCOME TAXES

The benefit from
income taxes was approximately $77,000 for the quarter ended April 5, 2009, and approximately $93,000 for the quarter ended March 28, 2008. The effective tax rate was 7% and 2.8% for the quarters ended April 5, 2009 and March 28,
2008, respectively. The benefit from income taxes during both quarters relates to the amortization of a deferred tax liability, established upon the acquisition of the Companys Swiss subsidiary in 2008.

The Companys net deferred tax liabilities at December 31, 2008 relate to the Companys subsidiary in Switzerland. All US deferred tax
assets have a full valuation allowance at December 31, 2008.

The Company had approximately $69.7 million of federal net operating
losses carry forwards at December 31, 2008. The net operating losses expire through year 2021. Utilization of a portion of the net operating losses and credit carry forwards are subject to an annual limitation due to the ownership change
provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.



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In June 2006, the FASB issued FIN 48 which provides for a two-step approach to recognize and measure
uncertain tax positions accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic
adjustments and which may not accurately anticipate actual outcomes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will
be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. Whether the
more-likely-than-not recognition threshold is met for a tax position is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence. The Company adopted the provisions of
FIN 48 effective December 9, 2008, the date of the merger with Lumera Corporation, resulting in no cumulative effect of adoption. There were no other significant adjustments during fiscal 2008 related to the Companys adoption of
FIN 48. There was no unrecognized tax benefits recorded for the quarter ended April 5, 2009. The Company does not expect the unrecognized tax benefit to change significantly during the next twelve months. Any interest and penalties
incurred on the settlement of outstanding tax positions would be recorded as a component of interest expense. The Company had no related accrued interest or penalties as of April 5, 2009.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company federal and state tax returns may be
subject to examination.

NOTE 9  SEGMENT AND GEOGRAPHY INFORMATION

SFAS No. 131, Disclosure about Segments of and Enterprise and Related Information, establishes standards for the way that public business
enterprise report information about operating segments in annual consolidated financial statements and requires that those enterprise report selected information about operating segments in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services, geographic and major customers. The Company operates in one reportable segmentthe design, development and sale of integrated circuits.

SFAS No. 131 establishes standards for the reporting by business enterprises of information about operating segments, products and services,
geographic areas, and major customers. The standard for determining what information to report is based on available financial information that is regularly reviewed and used by the Companys chief operating decision maker in evaluating the
Companys financial performance and resource allocation. The Companys chief operating decision-maker is considered to be the CEO. Based on the criteria in SFAS No. 131 for determining separately reportable operating segments and the
financial information available to and reviewed by the CEO, the Company has determined that it operates as a single operating and reportable segment.

The following table summarizes revenue by geographic region:



|              |  |                    |       |               |   |      
|------------- |  | ------------------ | ----- | ------------- | - | -----
|              |  | Three months ended
|              |  | April 5,2009       |       | March 28,2008
|              |  | (In thousands)    
|Asia          |  | $                  | 813   |               | $ | 422  
|Europe        |  |                    | 852   |               |   | 848  
|United States |  |                    | 2,429 |               |   | 413  
|              |  |                    |       |               |   |      
|              |  | $                  | 4,094 |               | $ | 1,683
|              |  |                    |       |               |   |      

The Company determines geographic location of its revenue based upon the destination of shipment
of its products.

The following table summarizes long-lived assets by country:



|              |  |                |       |                  |   |      
|------------- |  | -------------- | ----- | ---------------- | - | -----
|              |  | April 5,2009   |       | December 31,2008
|              |  | (In thousands)
|Switzerland   |  | $              | 249   |                  | $ | 1,710
|United States |  |                | 2,152 |                  |   | 1,004
|              |  |                |       |                  |   |      
|              |  | $              | 2,401 |                  | $ | 2,714
|              |  |                |       |                  |   |      

Long-lived assets, including property and equipment, intangible assets and other assets (excluding
deferred tax assets), are reported based on the location of the assets at the end of each reporting period.

NOTE 10  COMMITMENTS AND
CONTIGENCIES

Commitments

Leases

The Company leases its domestic and foreign sales offices under non-cancelable operating leases. These leases contain various expiration
dates and renewal options. In January 2009, the Company renewed its lease for its office facility located at Palo Alto, California. The new lease term will expire in December 2013. The Company also leases certain software licenses under operating
leases. Total rental expense for the first quarter of 2009 and 2008 was $0.2 million and $48,000, respectively.



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Aggregate non-cancelable future minimum rental payments under operating leases are as follows:



|                             |                |        |      
|---------------------------- | -------------- | ------ | -----
|Years Ended December 31,     |                | Amount
|                             | (In thousands)
|2009 (remaining nine months) |                | $      | 652  
|2010                         |                |        | 827  
|2011                         |                |        | 324  
|2012                         |                |        | 203  
|2013                         |                |        | 224  
|                             |                |        |      
|                             |                | $      | 2,230
|                             |                |        |      

Contingencies

Tax Contingencies

In 2008, the Franchise Tax Board (FTB) completed its audit of the Companys qualifying
sales and use activity for 2004 through 2007 and has proposed an amount due. The Company received a notice from the FTB and was assessed $0.3 million, which represents principal and estimated interest and penalties. As a result, in the fourth
quarter of 2008, the Company accrued $0.3 million in relation to the sales and use tax due for the period 2004 through 2007. In addition, the Company has estimated the 2008 sales and use tax due and accrued all amounts due as of April 5, 2009.

The Companys income tax calculations are based on application of the respective U.S. Federal, state or foreign tax law. The
Companys tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due.

Product Warranties

The Companys
products typically carry a standard warranty period of one year. The table below summarizes the movement in the warranty accrual for the quarters ended April 5, 2009 and March 28, 2008:



|                                                |  |                |     |   |               |   |    
|----------------------------------------------- |  | -------------- | --- | - | ------------- | - | ---
|                                                |  | April 5,2009   |     |   | March 28,2008
|                                                |  | (In thousands)
|Beginning Balance                               |  | $              | 120 |   |               | $ |   
|Accrual for warranties issued during the period |  |                |    |   |               |   | 129
|Settlements made                                |  |                | (59 | ) |               |   |   
|                                                |  |                |     |   |               |   |    
|Ending Balance                                  |  | $              | 61  |   |               | $ | 129
|                                                |  |                |     |   |               |   |    

NOTE 11  RELATED PARTY TRANSACTION

Historically, GigOptix LLC and iTerra funded their operations from the proceeds of promissory notes issued to Stellar Technologies LLC, the primary
member. Beginning in 2002, various promissory notes were issued by iTerra Communications LLC, the predecessor company of GigOptix, to Stellar. Borrowings under the notes bore interest at a fixed rate of 11% per annum and were collateralized by
all of iTerras assets. The outstanding principal balance of such notes, including accrued interest, were classified as additional paid-in capital as part of a reorganization plan for iTerra in June 2007. In July 2007 and January 2008, GigOptix
LLC issued convertible promissory notes to Stellar, which bore interest at a rate of 6% per annum. In August 2008, such convertible notes were converted into membership units of GigOptix LLC.



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##### Table of Contents

NOTE 12  FAIR VALUE MEASUREMENTS

Effective January 1, 2009, the Company adopted SFAS No. 157. As defined in SFAS No. 157, fair value is the price that would be received for
asset when sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that the Company believes market participants would use in
pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company primarily applies
the market approach for recurring fair value measurements, maximizing the use of observable inputs and minimizing the use of unobservable inputs to the extent possible. The Company also considers the securities stated interest rate, the security
issuers credit risk and the impact of market rate fluctuations in its assessment of fair value.

SFAS No. 157 establishes a fair
value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to
unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:



| |  |  | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets as of the reporting date. Active
markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide the most reliable pricing information and evidence of fair value on an ongoing basis.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs also include quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in
which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers and inputs other than quoted prices that are observable for the asset or
liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3 inputs to the valuation methodology are generally less observable from objective sources, using estimates and assumptions developed by management, which
reflect those that a market participant would use.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys assessment of the significance of a particular
input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The Companys money market securities of $3.94 million and $3.93
million as of April 5, 2009 and December 31, 2008, respectively, are classified within Level 1 as cash and cash equivalents on the condensed consolidated balance sheet.

NOTE 13  ACQUISITION OF HELIX AG

In January 2008, GigOptix LLC completed the
acquisition of Helix AG, a private company registered in Zurich, Switzerland. Helix designs and sells optoelectronic integrated circuits and vertical cavity surface emitting laser drivers. The aggregate purchase consideration for this acquisition
was approximately $2.5 million, which includes direct transaction costs.

In addition, the agreement called for payments totaling $2.0
million to be made to a former Helix employee and stockholder, contingent upon his continued employment with GigOptix LLC through the third anniversary of the acquisition close date. Any payments are automatically forfeited if the employment
contingency is not met and accordingly, the payments made are recorded as compensation expense, with $175,000 being recorded as a research and development expense in each of the quarters ended April 5, 2009 and March 28, 2008. At April 5, 2009,
the expense remaining to be incurred was $1.1 million, of which $675,000 and $450,000 were classified within prepaid and other current assets and other assets in the condensed consolidated balance sheet, respectively.

The operating results of Helix have been included in GigOptix consolidated financial results since the January 15, 2008
acquisition close date. The components of the purchase price consideration were as follows:



|                             |  |                |      
|---------------------------- |  | -------------- | -----
|                             |  | (In thousands)
|Cash paid                    |  | $              | 2,400
|Direct acquisition costs     |  |                | 143  
|                             |  |                |      
|                             | 
|Total purchase consideration |  | $              | 2,543
|                             |  |                |      

The acquisition was accounted for using the purchase method of accounting. The purchase price was
allocated based on the estimated fair values of tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition. The estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed
was in excess of the purchase price resulting in negative goodwill. Negative goodwill of approximately $790,000 has been allocated to the fair values of acquired long-lived assets, including acquired in-process research and development, or
IPR&D, on a pro-rata basis, resulting in a reduction of their recorded amounts. The total purchase price was allocated to the assets acquired and liabilities assumed as follows:



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##### Table of Contents

|                                             |  |                |       |  
|-------------------------------------------- |  | -------------- | ----- | -
|                                             |  | (In thousands) |      
|Net tangible assets acquired:                |  |                |       |  
|Cash                                         |  | $              | 872   |  
|Restricted cash                              |  |                | 45    |  
|Accounts receivable                          |  |                | 139   |  
|Inventories                                  |  |                | 195   |  
|Other current assets                         |  |                | 155   |  
|Property and equipment                       |  |                | 20    |  
|Other current liabilities                    |  |                | (198  | )
|Pension liabilities                          |  |                | (123  | )
|                                             |  |                |       |  
|                                             | 
|                                             |  |                | 1,105 |  
|Net deferred tax liabilities                 |  |                | (278  | )
|Intangible assets acquired:                  |  |                |       |  
|Existing technology                          |  |                | 1,116 |  
|Order backlog                                |  |                | 157   |  
|Customer relationships                       |  |                | 124   |  
|Acquired in-process research and development |  |                | 319   |  
|                                             |  |                |       |  
|                                             | 
|                                             |  | $              | 2,543 |  
|                                             |  |                |       |  

Intangible assets consist of existing technology, order backlog and customer relationships.
Existing technology relates to Helixs product portfolio of laser drivers, and limiting amplifiers which have reached technological feasibility and are currently generating revenue. Accordingly, the associated amortization expense is presented
as a component of cost of revenue.

Acquired IPR&D relates to projects under development associated with Helixs 10Gbps VCSEL
driver chip and 4-channel TIAs. The preliminary value assigned to acquire IPR&D was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased technology into
commercially viable products, estimating resulting net cash flows from the projects when completed and discounting net cash flows to present value. The fair value of acquired IPR&D was determined using the income approach, which discounts
expected cash flows to present value. At the date of acquisition, the projects under development were determined to be approximately 30% complete, with net cash flows from the projects expected to commence in 2009. At April 5, 2009, the
projects under development were determined to be approximately 90% complete. In connection with the acquisition, approximately $319,000 of acquired IPR&D was expensed in the quarter ended March 28, 2008.

Pro Forma Financial Information (Unaudited)

The
results of Helixs operations have been included in the Companys consolidated statements of operations since its acquisition date. Pro forma information for 2008 is not presented, as the acquisition occurred on January 15, 2008,
which is sufficiently close to the beginning of the period that the results of Helix are reflected in the condensed consolidated statement of operations for the quarter ended March 28, 2008.



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##### Table of Contents

|ITEM 2 | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------ | -------------------------------------------------------------------------------------

The following Managements Discussion and Analysis of Financial Condition and Results of Operations, which should be read in conjunction with our
unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the notes thereto contained in the Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 2009

This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and is
subject to the safe harbor created by that section. The words believe, expect, will, anticipate, estimate, project, plan, and similar expressions identify
forward-looking statements. Such statements may also include, but are not limited to, statements regarding the impact of recent accounting announcements; our expectation that net flows from Helix projects will commence in 2009; plans for
future financings or lines of credit; our expectations regarding the amount of cash necessary to fund future operations; estimates regarding the amount of periodic pension costs in 2009; our expectation that development, sales and other operating
expenses will increase in the future as we expand our business; our expectation that we will not generate the cash needed to finance our anticipated operations for the foreseeable future; our continued dependence on third parties to manufacture,
assemble or package our products; our intention not to purchase key person life insurance in the foreseeable future; our intention to compete for government contracts and our expectation that the contracts will account for a large percentage of our
revenue for the foreseeable future; our intentions regarding the payment of dividends and the retention of available funds and future earnings; our expectation that domestic and international competition will increase in our industry; our intention
to grow through strategic operations. Our expectations, beliefs, anticipations objectives, intentions, plans and strategies regarding the future are not guarantees of future performance and are subject risks and uncertainties that could cause actual
results to differ materially from those projected or implied. Factors that could cause results to differ materially from those projected or implied in the forward-looking statements include, but are not limited to, trends and fluctuations in our
industry; changes in demand and purchasing volume of our customers; advances in technology; unpredictability of suppliers; increased production or labor costs; our ability to attract and retain qualified personnel; pricing pressures and other
competitive factors; and our ability to establish and protect our intellectual property; competition; litigation; financial community perceptions of the company; changes in laws and regulations, including increased taxes; economic, credit and
capital market conditions; and the effects of war, terrorist or similar activity The forward-looking statements in this Quarterly Report on Form 10-Q are subject to additional risks and uncertainties, including those set forth in Part II,
Item 1A under the caption Risk Factors and as disclosed in other current and periodic reports filed or furnished from time to time with the SEC. The forward-looking statements are made as of the date hereof, and we undertake no
obligation to update or revise any of them, except as required by law.

Overview

GigOptix, Inc. (GigOptix or the Company) is a leading provider of electronic engines for the optically connected digital world and
other advanced RF applications. GigOptix was formed in March 2008 as a wholly-owned subsidiary of Lumera Corporation to facilitate a combination between GigOptix LLC and Lumera Corporation. Before the combination, which was affected by two mergers
collectively referred to as the merger. GigOptix had no operations or material assets. As a result of the transaction set forth in the Agreement and Plan of Merger, dated as of March 27, 2008, among Lumera, GigOptix LLC, Galileo
Merger Sub G, LLC and Galileo Merger Sub L, Inc., on December 9, 2008, the merger was completed and Lumera and GigOptix LLC became wholly owned subsidiaries of GigOptix, GigOptix is the successor public registrant to Lumera Corporation.
GigOptix focuses on the specification, design, development and sale of analog semiconductor integrated circuits, or ICs, multi-chip module solutions, or MCMs, and polymer modulators. GigOptix believes it is an industry leader in the fast growing
market for electronic solutions that enable high-bandwidth optical connections found in telecommunications (telecom) systems, data communications (datacom) and storage systems, and, increasingly, in consumer electronics and computing systems.

GigOptix products fall into the following main categories:



| |  |  | Laser and modulator Driver ICs and MCMs;
| | - |  | ----------------------------------------



| |  |  | Transimpedance and Limiting Amplifier ICs;
| | - |  | ------------------------------------------



| |  |  | Optical Modulators; and
| | - |  | -----------------------



| |  |  | Broadband RF Amplifiers.
| | - |  | ------------------------

These
products are capable of performing in various applications demanding a wide range of data processing speeds, from consumer electronics which perform at data processing speeds of 3Gbps to 10Gbps to sophisticated ultra-long haul submarine
telecommunications systems which require performance at data processing speeds from 10Gbps and 40Gbps to 100Gbps.

Prior to the merger,
GigOptix LLC was an Idaho limited liability company, headquartered in Palo Alto, California. GigOptix LLC was the successor company of iTerra Communications LLC, or iTerra, which was founded in 2000. In July 2007, as part of a reorganization plan,
iTerra formed GigOptix LLC, a wholly-owned subsidiary. All of the assets and liabilities of iTerra, with the exception of the $45.8 million of debt and accrued interest due to iTerras primary member, were transferred to GigOptix LLC along with
all of iTerras operations and intellectual property.

In August 2007, GigOptix LLC implemented a restructuring plan to consolidate
the research and development operations of its wholly-owned subsidiary, iTerra Communications SRL, based in Rome, Italy to its corporate headquarters in Palo Alto, California. In January 2008, GigOptix LLC acquired Helix AG, or Helix, a company
based in Switzerland, which designed and sold optical receiver transmitter array products consisting of driver and receiver arrays for 4-channel and 12-channel modules running at 3Gbps to 10Gbps per channel. GigOptix LLC acquisition of Helix
enabled GigOptix LLC to expand its product offering into short reach devices and systems.



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The Company has incurred negative cash flows from operations since inception. For the quarters ended
April 5, 2009 and March 28, 2008, the Company incurred net losses of $1.0 million and $2.1 million respectively, and cash outflows from operations of $2.1 million and $3.7 million respectively. As of April 5, 2009 and
December 31, 2008, the Company had an accumulated deficit of $60.0 million and $59.0 million, respectively. There can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which
are favorable or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Companys ability to achieve its intended business
objectives.

The Companys fiscal year ends on December 31. For quarterly reporting, the Company employs a four-week, four-week,
five-week reporting period. The current three-month period ended on Sunday, April 5, 2009. The first quarter of fiscal 2008 ended on March 28, 2008. The condensed consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The condensed consolidated
financial statements of the Company for the periods prior to December 9, 2008, presented herein, are the historical financial statements of GigOptix LLC, as GigOptix LLC was determined to be the accounting acquirer in the merger with Lumera
Corporation.

Critical Accounting Policies and Estimates

Managements Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to product returns, customer incentives, bad debts,
inventories, asset impairments, deferred tax assets, accrued warranty reserves, restructuring costs, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made
based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially
change the financial statements. GigOptix also has other key accounting policies that are less subjective, and therefore, their application would not have a material impact on GigOptix reported results of operations. There have been no significant
changes to our critical accounting policies which were disclosed in Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K filed with
the SEC on March 31, 2009.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. 157-4, Determining Fair Value When Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP No. 157-4). FSP No. 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and
level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP 157-4 requires disclosure in interim and
annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. FSP 157-4 is effective for us beginning in the second quarter of fiscal year 2009. The adoption of FSP
No. 157-4 is not expected to have a significant impact on our condensed consolidated financial statements.

In April 2009, the FASB
issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairment (FSP No. 115-2/124-2). FSP No. 115-2/124-2 amends the requirements for the recognition and
measurement of other-than-temporary impairments for debt securities by modifying the pre-existing intent and ability indicator. Under FSP 115-2/124-2, an other-than-temporary impairment is triggered when there is intent to sell the
security, it is more likely than not that the security will be required to be sold before recovery, or the security is not expected to recover the entire amortized cost basis of the security. Additionally, FSP No. 115-2/124-2 changes the
presentation of an other-than-temporary impairment in the statement of operations for those impairments involving credit losses. The credit loss component will be recognized in earnings and the remainder of the impairment will be recorded in other
comprehensive income. FSP No. 115-2/124-2 is effective for us beginning in the second quarter of fiscal year 2009. The adoption of FSP No. 115-2/124-2 is not expected to have a significant impact on our condensed consolidated financial
statements.

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement), which requires issuers of convertible debt that may be settled wholly or partly in cash when converted to account for the debt and equity components separately in a manner that reflects the
issuers nonconvertible debt borrowing rate. FSP APB 14-1 was effective for fiscal years beginning after December 15, 2008, and must be applied retrospectively to all periods presented. We adopted FSP APB 14-1 in the quarter ended
April 5, 2009, but as our previously outstanding convertible notes were not able to be settled in cash or other assets upon conversion, the adoption had no significant impact on our condensed consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. FSP EITF 03-6-1 clarifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are
considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. We do not anticipate the
adoption of EITF 03-6-1 will have a material impact on our condensed consolidated financial statements.

In April 2008, the FASB
issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets, (FSP 142-3) that amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under Statement of Financial Accounting Standards (SFAS) SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). FSP 142-3 requires



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a consistent approach between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of an asset under SFAS No. 141 (R), Business Combinations (SFAS 141®). The FSP also requires enhanced disclosures when an intangible assets expected future cash flows are affected by an entitys
intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applied prospectively. Early adoption is prohibited. Effective
January 1, 2009, we adopted FSP 142-3 and the adoption of FSP 142-3 did not have a material impact on our condensed consolidated financial statements.

In February 2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157 (FSP No. 157-2), which delays the effective date of SFAS No. 157, Fair Value
Measurements, for all non-recurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. Effective January 1, 2009, we adopted FSP FAS No. 157-2
and this adoption did not have a material impact to our condensed consolidated financial statements.

In December 2007, the FASB
issued SFAS No. 141(R), which establishes the principles and requirements for how an acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed
and any non-controlling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (3) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the business combination. In April 2009, the FASB issued FSP FAS 141(R)-1, which amends the initial recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business combination. SFAS No. 141(R) and FSP FAS 141(R)-1 are effective beginning in the quarter ended April 5, 2009 and our adoption had no significant impact on our
condensed consolidated financial statements. The impact of the adoption in subsequent quarters will depend on the nature and extent of business combinations that we complete, if any, in or after fiscal 2009; however, it is expected to change our
accounting treatment for any future business combinations.

Results of Operations

Revenue

Revenue for the periods reported was as follows:



|                                        |  |                                    |       |   |               |   |      
|--------------------------------------- |  | ---------------------------------- | ----- | - | ------------- | - | -----
|                                        |  | Three months ended                
|                                        |  | April 5,2009                       |       |   | March 28,2008
|                                        |  | (In thousands, except percentages)
|Product                                 |  | $                                  | 2,477 |   |               | $ | 1,683
|Government contract                     |  |                                    | 1,617 |   |               |   |     
|                                        |  |                                    |       |   |               |   |      
|Total revenue                           |  | $                                  | 4,094 |   |               | $ | 1,683
|Increase period over period             |  | $                                  | 2,411 |   |               |   |      
|Percentage increase, period over period |  |                                    | 143   | % |               |   |      

Revenue for the quarter ended April 5, 2009 was $4.1 million, an increase of $2.4 million or
143% compared with $1.7 million for the quarter ended March 28, 2008. The increase in revenue is primarily the result of our merger with Lumera Corporation in December 2008, which accounted for approximately $1.8 million of the increase,
including all of the increase in government contract revenue. The additional increase of $0.6 million is a result of organic growth in our telecom and broadband businesses, a portion of which was additional revenue related to various product
solutions having transitioned from the research and development stage to the commercialization stage. Shipments across all geographic regions were higher compared to a year ago, with shipments to Asia and the U.S. contributing 16% and 84%,
respectively, to the total increase in revenue.

Gross Profit

Gross profit consists of revenue, less cost of revenue, which includes amortization of certain identified intangible assets. Cost of revenue consists primarily of the manufacture of saleable chips, including
outsourced wafer fabrication and testing. Amortization expense of identified intangible assets, namely existing technology, is presented within of cost of revenue, as the intangible assets were determined to be directly attributable to revenue
generating activities.

Cost of revenue and gross profit for the periods presented was as follows:



|                                        |  |                                    |       |   |               |   |       |  
|--------------------------------------- |  | ---------------------------------- | ----- | - | ------------- | - | ----- | -
|                                        |  | Three months ended                 |      
|                                        |  | April 5,2009                       |       |   | March 28,2008 |  
|                                        |  | (In thousands, except percentages) |      
|Product                                 |  | $                                  | 1,160 |   |               | $ | 1,034 |  
|Government contract                     |  |                                    | 580   |   |               |   |      |  
|                                        |  |                                    |       |   |               |   |       |  
|Total cost of revenue                   |  | $                                  | 1,740 |   |               | $ | 1,034 |  
|Percentage of revenue                   |  |                                    | 43    | % |               |   | 61    | %
|Increase period over period             |  | $                                  | 706   |   |               |   |       |  
|Percentage increase, period over period |  |                                    | 68    | % |               |   |       |  



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Gross profit for the quarter ended April 5, 2009 was $2.4 million, or 58% of revenue, an increase of
$1.7 million or 263% as compared to a gross profit of $649,000, or 39% of revenue, for the quarter ended March 28, 2008. The significant improvement in gross profit comparing to the prior period is primarily attributable to increased sales of
high gross margin products to new global customers in the telecommunication industry, together with reductions in product manufacturing cost associated with the major cost reduction and supply chain management plans that the Company has implemented.

Research and Development Expense

Research and development expenses are expensed as incurred. Research and development costs consist primarily of consulting and engineering design, non-capitalized tools and equipment, equipment depreciation and employee compensation.

Research and development expense for the periods presented was as follows:



|                                       |  |                                    |       |   |               |   |       |  
|-------------------------------------- |  | ---------------------------------- | ----- | - | ------------- | - | ----- | -
|                                       |  | Three months ended                 |      
|                                       |  | April 5,2009                       |       |   | March 28,2008 |  
|                                       |  | (In thousands, except percentages) |      
|Research and Development Expense       |  | $                                  | 1,499 |   |               | $ | 1,013 |  
|Percentage of Revenue                  |  |                                    | 37    | % |               |   | 60    | %
|Increase, period over period           |  | $                                  | 485   |   |               |   |       |  
|Percentage increase period over period |  |                                    | 48    | % |               |   |       |  

Research and development expense for the quarter ended April 5, 2009 was $1.5 million compared to $1.0
million for the quarter ended March 28, 2008, an increase of $0.5 million or 48%. For the quarter ended April 5, 2009, the increase in research and development expense primarily resulted from increased headcount and the associated
compensation costs related to the merger with Lumera Corporation in December, 2008.

Selling, General and Administrative Expense

Selling, general and administrative expenses consist primarily of salaries and benefits for management, marketing and administration personnel, as well
as fees for consultants.

Selling, general and administrative expense for the periods presented was as follows:



|                                            |  |                                    |       |   |               |   |       |  
|------------------------------------------- |  | ---------------------------------- | ----- | - | ------------- | - | ----- | -
|                                            |  | Three months ended                 |      
|                                            |  | April 5,2009                       |       |   | March 28,2008 |  
|                                            |  | (In thousands, except percentages) |      
|Selling, General and Administrative Expense |  | $                                  | 2,285 |   |               | $ | 1,274 |  
|Percentage of revenue                       |  |                                    | 56    | % |               |   | 76    | %
|Increase period over period                 |  | $                                  | 1,011 |   |               |   |       |  
|Percentage increase, period over period     |  |                                    | 79    | % |               |   |       |  

Selling, general and administrative expense for the quarter ended April 5, 2009 was $2.3 million compared to
$1.3 million for the quarter ended March 28, 2008, an increase of $1.0 million or 79%. This increase is primarily due to professional fees, including legal, accounting and auditing services, associated with the merger with Lumera Corporation,
and increased compensation costs related to increased headcount.

Acquired In-Process Research and Development



|                                             |  |                                    |   |               |   |    
|-------------------------------------------- |  | ---------------------------------- | - | ------------- | - | ---
|                                             |  | Three months ended                
|                                             |  | April 5,2009                       |   | March 28,2008
|                                             |  | (In thousands, except percentages)
|Acquired in-process research and development |  | $                                  |  |               | $ | 319

In connection with the acquisition of Helix in January 2008, we allocated approximately $319,000
of the purchase price to acquired in-process research and development expense, or IPR&D. The amount allocated to IPR&D was immediately expensed in the period the acquisition was completed, as the associated project had not yet reached
technological feasibility and no future alternative uses existed for the technology. Acquired IPR&D relates to projects under development associated with Helix 10Gbps VCSEL driver chip and 4-channel transimpedance amplifiers. The
preliminary value assigned to acquired IPR&D was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased technology into commercially viable products,
estimating resulting net cash flows from the projects when completed and discounting net cash flows to present value. The fair value of acquired IPR&D was determined using the income approach, which discounts expected cash flows to present
value. At the date of acquisition, the projects under development were determined to be 30% complete, with net cash flows from the projects expected to commence in 2009. As of April 5, 2009, the projects were 90% complete.

Interest and other income (expense)

Interest
and other income (expense) for the periods presented were as follows:



|                          |  |                    |     |               |   |      |  
|------------------------- |  | ------------------ | --- | ------------- | - | ---- | -
|                          |  | Three months ended |    
|                          |  | April 5,2009       |     | March 28,2008 |  
|                          |  | (In thousands)     |    
|Interest Income (Expense) |  | $                  | 2   |               | $ | (78  | )
|Other Income (Expense)    |  |                    | 336 |               |   | (166 | )
|                          |  |                    |     |               |   |      |  
|                          |  | $                  | 338 |               | $ | (244 | )
|                          |  |                    |     |               |   |      |  



20



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Interest income (expense) for the quarter ended April 5, 2009 decreased by $80,000 as compared to
the quarter ended March 28, 2008, of which $78,000 of the decrease is attributable to conversion of the convertible promissory notes to Stellar Technologies LLC, which were converted in August 2008. The remaining decrease relates to interest
expense on the line of credit with Silicon Valley Bank.

Other income (expense) for the quarter ended April 5, 2009 increased by
$502,000 as compared to the quarter ended March 28, 2008. The increase is primarily due to the sale of the assets of our Plexera Bioscience LLC subsidiary, including all patents and trademarks related to the Plexera business on
February 17, 2009. The assets were sold as is to Plexera, LLC, a newly formed company, for $300,000 and recorded a gain of $300,000 included in Other income (expense), net. The Company does not expect to receive any
further consideration for the Plexera business.

Benefit from Income Taxes

The benefit from income taxes was approximately $77,000 for the quarter ended April 5, 2009, and approximately $93,000 for the quarter ended
March 28, 2008. The effective tax rate was 7% and 2.8% for the quarters ended April 5, 2009 and March 28, 2008, respectively. The benefit from income taxes during both quarters relates to the amortization of a deferred tax liability,
established upon the acquisition of the Companys Swiss subsidiary in 2008.

Liquidity and Capital Resources

Cash and cash equivalents and cash flow data for the periods presented were as follows:



|                          |  |                |       |                  |   |      
|------------------------- |  | -------------- | ----- | ---------------- | - | -----
|                          |  | April 5,2009   |       | December 31,2008
|                          |  | (In thousands)
|Cash and cash equivalents |  | $              | 4,644 |                  | $ | 6,871



|                                                    |  |                    |        |   |               |   |        |  
|--------------------------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                                    |  | Three months ended |       
|                                                    |  | April 5,2009       |        |   | March 28,2008 |  
|                                                    |  | (In thousands)     |       
|Net cash used in operating activities               |  | $                  | (2,058 | ) |               | $ | (3,654 | )
|Net cash provided by (used in) investing activities |  | $                  | 134    |   |               | $ | (1,673 | )
|Net cash provided by (used in) financing activities |  | $                  | (300   | ) |               | $ | 5,281  |  

GigOptix previously maintained a short-term line of credit under which it could borrow up to
$800,000, based on net eligible accounts receivable. Borrowings under the line of credit bore interest at the banks prime rate plus 1.25% (5.25% as of April 5, 2009 and 8.79% as of March 28, 2008). The line of credit was available
through April 15, 2009, on which date the Company repaid the outstanding amount and terminated the line. Borrowings under the line were collateralized by a security interest in all of GigOptix accounts receivable. The line of credit also
required the Company to be in compliance with certain financial covenants, of which it was in compliance with at April 5, 2009.

Operating Activities.

Cash used for operating activities during the first quarter of fiscal 2009 was $2.1 million,
resulting from a net loss of $1.0 million, decreases in accounts payable of $0.3 million, accrued and other current liabilities of $0.2 million, increases in accounts receivable of $0.5 million and prepaid and other current assets of $0.3 million,
and gain on sale of Plexera assets of $0.3 million, partially offset by non-cash expenses for depreciation and amortization, stock based compensation and amortization of acquisition-related payment of $0.2 million, $0.1 million and $0.2 million,
respectively.

Cash used for operating activities during the first quarter of fiscal 2008 was $3.7 million, resulting from a net loss of
$2.1 million, decrease of $0.4 million of accrued and other current liabilities, increases in accounts receivable of $0.2 million and prepaid and other current assets of $0.1 million, and acquisition-related retention payment of $2.0 million, offset
partially by non cash expenses for depreciation and amortization of $0.2 million, acquired in-process research and development of $0.3 million, and amortization of acquisition-related payment of $0.2million.

Investing Activities.

Net cash
provided by investing activities for the first quarter of fiscal 2009 was $0.1 million, and consisted of proceeds from the sale of Plexera assets of $0.3 million and purchases of fixed assets, essentially, network and laboratory equipment, of $0.2
million. Net cash used in investing activities for the first quarter of 2008, consisted of net cash acquired in the acquisition of Helix in January 2008 of $1.7 million and purchases of fixed assets of $0.02 million, primarily related to purchases
of computer and network equipment.



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Financing Activities.

Net cash used in financing activities during first quarter of fiscal year 2009 was $0.3 million, and consisted solely of net repayment to the line of
credit with Silicon Valley Bank. Net cash provided by financing activities during the first quarter of 2008, was $5.3 million and consisted of $5.5 million in proceeds from convertible notes payable to stockholders, $0.7 million repayment of notes
payable to stockholder, and net proceeds from the line of credit with Silicon Valley Bank of $0.5 million.

We have incurred significant
losses since inception, attributable to our efforts to design and commercialize our products. We have managed our liquidity during this time through a series of cost reduction initiatives and prior to its termination, a line of credit with Silicon
Valley Bank. Our ability to continue as a going concern is dependent on many events outside of our direct control, including, among other things; obtaining additional financing either privately or through public markets and consumers
purchasing our products in substantially higher volumes. Such financing may not be available to us in the amounts or on terms acceptable to it. If we are unable to raise financing to continue to fund operations, we may have to further reduce or
discontinue certain operations, which would have an adverse effect on our business. The significant recent operating losses and negative cash flows, among other factors, raise substantial doubt as to our ability to continue as a going concern.



|ITEM 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
disclosure controls and procedures - Based on an evaluation under the supervision and with the participation of the Companys management, our Chief Executive Officer and Acting Chief Financial Officer have concluded that, due to the
material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008 that remain unremediated, the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) were not effective as of April 5, 2009.

Changes in Internal Control - During the quarter ended March 31, 2009, we continued to implement our remediation plan in response to the material weaknesses discussed in our annual report on Form 10-K for the year
ended December 31, 2008. We have hired additional accounting staff, and we have engaged a consultant regarding the implementation of additional internal controls, including an upgrade and companywide integration of our enterprise resource
planning system. While our effort to remediate our material weakness is ongoing, we are in the initial stages of executing our remediation plan. Accordingly, we do not believe that our material weaknesses have been remediated, or that the
changes made to our internal control over financial reporting during the quarter ended April 5, 2009 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

From time to time, we are a
party to litigation arising in the ordinary course of our business. We are not currently a party to any litigation that we believe could reasonably be expected to have a material adverse effect on our results of operations, financial condition or
cash flows.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

We have revised the risk factors
that relate to our business, as set forth below. These risks include any material changes to and supercede the risks previously disclosed in Part I , Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2008. We
encourage investors to review the risk factors and uncertainties relating to our business disclosed in that Form 10-K, as well as those contained in Part 1, Item 2, Managements Discussion and Analysis of Financial Condition and Results of
Operations, above.

Our common stock is quoted on the OTC Bulletin Board, which may reduce the liquidity of our common stock and negatively
affect our stock price.

Since the completion of the merger with Lumera on December 9, 2008, our common stock has been quoted
on the OTC Bulletin Board. This may reduce the liquidity of our common stock, may cause investors not to trade in our stock and may result in a lower stock price. In addition, investors may find it more difficult to obtain accurate quotations of the
share price of our common stock.

Lumera Corporation and GigOptix LLC have incurred substantial operating losses in the past and the Company may
incur operating losses for the foreseeable future.

Since Lumeras inception, it has been engaged primarily in the research and
development of polymer materials technologies and potential products. As a result, Lumera incurred net losses of $76.8 million from inception through December 31, 2007 and an additional net loss of $7.7 million for the six months ended
June 30, 2008. During 2007, GigOptix LLC accelerated the marketing and commercialization of its product portfolio. Since its inception in July 1, 2007, GigOptix LLC and from 2000, its parent company, iTerra, have incurred net losses of
$51.3 million through December 31, 2007 and an additional net loss of $3.7 million for the six months ended June 30, 2008. In addition, the Company expects development, sales and other operating expenses to increase in the future
as it expands its business. If the Companys revenue does not grow to offset these expected increased expenses, the Company may not be profitable. In fact, in future quarters, the Company may not have any revenue growth and its revenues could
decline. Furthermore, if the Companys operating expenses exceed its expectations, its financial performance will be adversely affected and the Company may continue to incur significant losses in the future.

The Company will require additional capital to continue to fund its operations. If the Company does not obtain additional capital, it may be required to
substantially limit operations.

The Company does not expect to generate the cash needed to finance its anticipated operations for
the foreseeable future. Accordingly, the Company may need to seek additional funding through public or private financings, including equity financings, and through other arrangements, including collaborations. Poor financial results, unanticipated
expenses, unanticipated drop in projected revenues, or unanticipated opportunities



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could require additional financing sooner than expected. Such financing may be unavailable when needed or may not be available on acceptable terms. If the
Company raises additional funds by issuing equity or convertible debt securities, the percentage ownership of its current stockholders will be reduced, and these securities may have rights superior to those of Company the Companys common
stock. If adequate funds are not available to satisfy either short-term or long-term capital requirements, or if planned revenues are not generated, the Company may be required to limit its operations substantially. These limitations of operations
may include a possible sale or shutdown of portions of the business, reductions in capital expenditures and reductions in staff and discretionary costs.

We currently have a material weakness in our internal control over financial reporting. If we fail to remedy our material weakness or otherwise fail to maintain effective internal control over financial reporting, the accuracy and
timing of our financial reporting may be adversely affected.

In connection with the audit of our consolidated financial statements
for the years ended December 31, 2008 and 2007, material weaknesses in our internal controls over financial reporting, as defined in rules established by the Public Company Accounting Oversight Board, or PCAOB, were identified. A material
weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements would not be
prevented or detected on a timely basis. The material weakness was attributed to us not maintaining a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of generally
accepted accounting principles commensurate with our financial reporting requirements. Specifically, this deficiency resulted in audit adjustments related to the completeness and accuracy of our stock-based compensation accounts, capitalized
acquisition costs and intangible assets acquired in a business combination, and disclosures in the consolidated financial statements for the year ended December 31, 2008. While we have adopted a remediation plan, we are only in the initial
stage of executing this plan and we do not believe that our material weaknesses have been remediated as of April 5, 2009. We do not have an integrated financial reporting system and will not be in a position to put one in place until the second
quarter at the earliest.

In addition, other material weaknesses or significant deficiencies in our internal control over financial
reporting may be identified in the future. If we fail to remediate our existing material weakness or future material weaknesses or fail to implement required new or improved controls, or encounter difficulties in their implementation, it could harm
our operating results, cause failure to meet our SEC reporting obligations on a timely basis or result in material misstatements in our annual or interim financial statements. If we are unable to remediate material weaknesses or otherwise are unable
to produce timely and accurate financial statements, our stock price may be adversely affected.

If we are unable to effectively implement or
maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial results and our stock price could be adversely affected.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting as of the
end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting in our annual report on Form 10-K for that fiscal year. Section 404 also currently requires our independent
registered public accounting firm, beginning with our fiscal year ending December 31, 2009, to attest to, and report on our internal control over financial reporting. Our ability to comply with the annual internal control report requirements
will depend on the effectiveness of our financial reporting and data systems and controls across our company. We expect these systems and controls to involve significant expenditures and to become increasingly complex as our business grows and to
the extent that we make and integrate acquisitions. To effectively manage this complexity, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Any failure to implement
required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, which could adversely affect our
business and reduce our stock price.

The Company derives a significant portion of its revenue from a small number of customers and
the loss of one or more of these key customers, the diminished demand for the Companys products from a key customer, or the failure to obtain certifications from a key customer or its distribution channel could significantly reduce the
Companys revenue and profits.

A relatively small number of customers account for a significant portion of the Companys
revenue in any particular period. One or more of the Companys key customers may discontinue operations as a result of consolidation, liquidation or otherwise, or reduce significantly its businesses with GigOptix due to the world economy slow
down impact. Reductions, delays and cancellation of orders from the Companys key customers or the loss of one or more key customers could significantly further reduce its revenue and profits. There is no assurance that the Companys
current customers will continue to place orders with the Company, that orders by existing customers will continue at current or historical levels or that it will be able to obtain orders from new customers.

The Companys quarter-to-quarter performance may vary substantially, and this variance, as well as general market conditions, may cause its stock price to
fluctuate greatly and potentially expose the Company to litigation.

Due to uncertainty regarding revenues for all of the
Companys product lines, the Companys quarterly operating results may vary significantly based on many factors, including:



| |  |  | reductions or delays in funding of development programs involving new polymer materials technologies by the U.S. government;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | additions of new customers;
| | - |  | ---------------------------



| |  |  | fluctuating demand for the Companys potential products and technologies;
| | - |  | -------------------------------------------------------------------------



| |  |  | announcements or implementation by competitors of technological innovations or new products;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the status of particular development programs and the timing of performance under specific development agreements;
| | - |  | ------------------------------------------------------------------------------------------------------------------



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| |  |  | timing and amounts relating to the expansion of operations;
| | - |  | -----------------------------------------------------------



| |  |  | costs related to possible future acquisitions of technologies or businesses;
| | - |  | ----------------------------------------------------------------------------



| |  |  | communications, information technology and semiconductor industry conditions;
| | - |  | -----------------------------------------------------------------------------



| |  |  | fluctuations in the timing and amount of customer requests for product shipments;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the reduction, rescheduling or cancellation of orders by customers, including as a result of slowing demand for the Companys products or its customers
products or over-ordering of the Companys products or its customers products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the mix of products that its customers buy;
| | - |  | ------------------------------------------------------



| |  |  | competitive pressures on selling prices;
| | - |  | ----------------------------------------



| |  |  | the ability of the Companys customers to obtain components from their other suppliers;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | fluctuations in manufacturing output, yields or other problems or delays in the fabrication, assembly, testing or delivery of its products or its customers
products; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in the costs of products or discontinuance of products by suppliers.
| | - |  | ------------------------------------------------------------------------------

Current and future expense estimates for the Company are based, in large part, on estimates of future revenue, which is difficult to predict. The Company
expects to continue to make significant operating and capital expenditures in the area of research and development and to invest in and expand production, sales, marketing and administrative systems and processes. The Company may be unable to, or
may elect not to, adjust spending quickly enough to offset any unexpected revenue shortfall. If the Companys increased expenses are not accompanied by increased revenue in the same quarter, its quarterly operating results would be harmed.

In one or more future quarters, the Companys results of operations may fall below the expectations of investors and the trading
price of its common stock may decline as a consequence. The Company believes that quarter-to-quarter comparisons of its operating results will not be a good indication of future performance and should not be relied upon to predict the future
performance of its stock price. In the past, companies that have experienced volatility in the market price of their stock have often been subject to securities class action litigation. The Company may be the target of this type of litigation in the
future. Securities litigation could result in substantial costs and divert managements attention from other business concerns, which could seriously harm its business.

Dependence on third-party manufacturing and supply relationships increases the risk that the Company will not have an adequate supply of products to meet demand or that the cost of materials will be higher than
expected.

The company expects that it will depend upon third parties to manufacture, assemble or package its products. As a result,
the Company will be subject to risks associated with these third parties, including:



| |  |  | reduced control over delivery schedules and quality;
| | - |  | ----------------------------------------------------



| |  |  | inadequate manufacturing yields and excessive costs;
| | - |  | ----------------------------------------------------



| |  |  | difficulties selecting and integrating new subcontractors;
| | - |  | ----------------------------------------------------------



| |  |  | potential lack of adequate capacity during periods of excess demand;
| | - |  | --------------------------------------------------------------------



| |  |  | limited warranties on products supplied to the Company;
| | - |  | -------------------------------------------------------



| |  |  | potential increases in prices;
| | - |  | ------------------------------



| |  |  | potential instability in countries where third-party manufacturers are located; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | potential misappropriation of its intellectual property.
| | - |  | --------------------------------------------------------

Outside foundries generally manufacture products on a purchase order basis, and the Company has very few long-term supply arrangements with these suppliers. The Company has less control over delivery schedules,
manufacturing yields and costs than competitors with their own fabrication facilities. A manufacturing disruption experienced by one or more of the outside foundries or a disruption of the Companys relationship with an outside foundry,
including discontinuance of its products by that foundry, would negatively impact the production of certain of the Companys products for a substantial period of time.

The Companys future success depends in part on the continued service of its key senior management, design engineering, sales, marketing, and technical personnel and its ability to identify, hire and retain
additional, qualified personnel.

The Companys future success depends to a significant extent upon the continued service of
its senior management personnel, including its chief executive officer, Dr. Avi Katz and its Chief Technical Officer, Andrea Betti-Berutto. The Company does not maintain key person life insurance on any of its executive officers and does not
intend to purchase any in the future. The loss of key senior executives could have a material adverse effect on the Companys business. There is intense competition for qualified personnel in the semiconductor and polymer industries, and the
Company may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of its business, or to replace engineers or other qualified personnel who may leave its employment in the future. There
may be significant costs associated with recruiting, hiring and retention of personnel. Periods of contraction in the Companys business may inhibit its ability to attract and retain its personnel. Loss of the services of, or failure to
recruit, key design engineers or other technical and management personnel could be significantly detrimental to the Companys product development or other aspects of its business.



24



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The Company may fail to realize the benefits of its merger with Lumera Corporation.

The Companys future success will depend in significant part on its ability to realize the cost savings, operating efficiencies and new revenue
opportunities that it expects to result from the integration of the Lumera Corporation and GigOptix LLC businesses following the merger. The Companys operating results and financial condition will be adversely affected if the Company is unable
to integrate successfully the operations of its subsidiaries, fails to achieve or achieve on a timely basis such cost savings, operating efficiencies and new revenue opportunities, or incurs unforeseen costs and expenses or experiences unexpected
operating difficulties that offset anticipated cost savings. In particular, the integration of GigOptix LLC and Lumera Corporation may involve, among other matters, integration of sales, marketing, billing, accounting, quality control, management,
personnel, payroll, regulatory compliance, network infrastructure and other systems and operating hardware and software, some of which may be incompatible and therefore may need to be replaced. The Company has begun the process of integration but
does not know whether this integration will be successful.

The Companys cost savings estimates are based upon assumptions by its
management concerning a number of factors, including operating efficiencies, the consolidation of functions, and the integration of operations, systems, marketing methods and procedures. These assumptions are uncertain and are subject to significant
business, economic and competitive conditions that are difficult to predict and often beyond the control of management.

Integrating the GigOptix LLC
and Lumera Corporation businesses may divert managements attention away from operations.

Successful integration of the
operations, products and personnel of GigOptix LLC and Lumera Corporation will place a significant burden on the Companys management and internal resources. The diversion of managements attention and any difficulties encountered in the
transition and integration process could otherwise harm the Companys business, financial condition and operating results. The integration will require efforts from each company, including the coordination of their general and administrative
functions. For example, integration of administrative functions includes coordinating employee benefits, payroll, financial reporting, purchasing and disclosure functions. Delays in successfully integrating and managing employee benefits could lead
to dissatisfaction and employee turnover. Problems in integrating purchasing and financial reporting could result in control issues, including unplanned costs. In addition, the combination of the GigOptix LLC and Lumera Corporation organizations may
result in greater competition for resources and elimination of product development programs that might otherwise be successfully completed.

Provisions in the Companys amended and restated certificate of incorporation and the Companys amended and restated bylaws may prevent takeover attempts that could be beneficial to the Companys stockholders.

Provisions of the Companys amended and restated certificate of incorporation and provisions of the Companys amended and
restated bylaws could discourage a takeover of the Company even if a change of control of the Company would be beneficial to the interests of its stockholders. These charter provisions include the following:



| |  |  | a requirement that the Companys board of directors be divided into three classes, with approximately one-third of the directors to be elected each year; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | supermajority voting requirements (two-thirds of outstanding shares) applicable to the approval of any merger or other change of control transaction that is not
approved by the Companys continuing directors. The continuing directors are all of the directors as of the effective time of the merger or who are elected to the board upon the recommendation of a majority of the continuing directors.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company will be subject to the risks frequently experienced by early stage companies.

The likelihood of the Companys success must be considered in light of the risks frequently encountered by early stage companies, especially those
formed to develop and market new technologies. These risks include the Companys potential inability to:



| |  |  | establish product sales and marketing capabilities;
| | - |  | ---------------------------------------------------



| |  |  | establish and maintain markets for its potential products;
| | - |  | ----------------------------------------------------------



| |  |  | identify, attract, retain and motivate qualified personnel;
| | - |  | -----------------------------------------------------------



| |  |  | continue to develop and upgrade the Companys technologies to keep pace with changes in technology and the growth of markets using semiconductors and polymer
materials;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | develop expanded product production facilities and outside contractor relationships;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | maintain its reputation and build trust with customers;
| | - |  | -------------------------------------------------------



| |  |  | improve existing and implement new transaction-processing, operational and financial systems;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | scale up from small pilot or prototype quantities to large quantities of product on a consistent basis;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | contract for or develop the internal skills needed to master large volume production of its products; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | fund the capital expenditures required to develop volume production due to the limits of available financial resources.
| | - |  | -----------------------------------------------------------------------------------------------------------------------



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The Companys future growth will suffer if it does not achieve sufficient market acceptance of its products.

The Companys success depends, in part, upon its ability to maintain and gain market acceptance of its products. To be
accepted, these products must meet the quality, technical and performance requirements of the Companys customers and potential customers. The optical communications industry is currently fragmented with many competitors developing different
technologies. Some of these technologies may not gain market acceptance. The Companys products, including products based on polymer materials, may not be accepted by OEMs and systems integrators of optical communications networks and consumer
electronics. In addition, even if the Company achieves some degree of market acceptance for its potential products in one industry, the Company may not achieve market acceptance in other industries for which it is developing products.

Many of the Companys current products, more so those based on polymer technology, are either in the development stage or are being tested by
potential customers. The Company cannot be assured that its development efforts or customer tests will be successful or that they will result in actual material sales.

Achieving market acceptance for the Companys products will require marketing efforts and the expenditure of financial and other resources to create product awareness and demand by customers. It will also require
the ability to provide excellent customer service. The Company may be unable to offer products that compete effectively due to GigOptix limited resources and operating history. Also, certain large corporations may be predisposed against doing
business with a company of its limited size and operating history. Failure to achieve broad acceptance of the Companys products by customers and to compete effectively would harm its operating results.

Successful commercialization of current and future products will require the Company to maintain a high level of technical expertise.

Technology in the Companys target markets is undergoing rapid change. To succeed in its target markets, the Company will have to establish and
maintain a leadership position in the technology supporting those markets. Accordingly, the Companys success will depend on its ability to:



| |  |  | accurately predict the needs of target customers and develop, in a timely manner, the technology required to support those needs;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide products that are not only technologically sophisticated but are also available at a price acceptable to customers and competitive with comparable products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establish and effectively defend its intellectual property; and
| | - |  | ---------------------------------------------------------------



| |  |  | enter into relationships with other companies that have developed complementary technology into which the Companys products may be integrated.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

The Company cannot assure that it will be able to achieve any of these objectives.

Many of the Companys products will have long sales cycles, which may cause the Company to expend resources without an acceptable financial return and which
makes it difficult to plan its expenses and forecast its revenues.

Many of the Companys products will have long sales cycles
that involve numerous steps, including initial customer contacts, specification writing, engineering design, prototype fabrication, pilot testing, regulatory approvals (if needed), sales and marketing and commercial manufacture. During this time,
the Company may expend substantial financial resources and management time and effort without any assurance that product sales will result. The anticipated long sales cycle for some of the Companys products makes it difficult to predict the
quarter in which sales may occur. Delays in sales may cause the Company to expend resources without an acceptable financial return and make it difficult to plan expenses and forecast revenues.

The Company relies on a small number of development contracts with the U.S. Department of Defense and government contractors for a large portion of its revenue.
The termination or non-renewal of one or more of these contracts could reduce the future revenue of the Company.

Prior to the
merger, over 95% of Lumera Corporations annual revenue from continuing operations was derived from performance on a limited number of development contracts with various agencies within the U.S. government. Any failure by the Company to
continue these relationships or significant disruption or deterioration of its relationship with the Department of Defense may reduce revenues. Government programs must compete with programs managed by other contractors for limited amounts and
uncertain levels of funding. The total amount and levels of funding are susceptible to significant fluctuations on a year-to-year basis. The Companys competitors frequently engage in efforts to expand their business relationships with the
government and are likely to continue these efforts in the future. In addition, the Companys development contracts with government agencies are subject to potential profit and cost limitations and standard provisions that allow the U.S.
government to terminate such contracts at any time at its convenience. Termination of these development contracts, a shift in government spending to other programs in which the Company is not involved, or a reduction in government spending generally
or defense spending specifically could severely harm the Companys business. The Company intends to continue to compete for government contracts and expects such contracts will be a large percentage of its revenue for the foreseeable future.
The development contracts in place with various agencies within the U.S. Department of Defense require ongoing compliance with applicable federal procurement regulations. Violations of these regulations can result in civil, criminal or
administrative proceedings involving fines, compensatory and punitive damages, restitution and forfeitures, as well as suspensions or prohibitions from entering into such development contracts. Also, the reporting and appropriateness of costs and
expenses under these development contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an agency of the U.S. Department of Defense. Any failure to comply with applicable government regulations could jeopardize
the Companys development contracts and otherwise harm its business.

Most of the Companys products are directed at the telecommunications
and networking markets, which continue to be subject to overcapacity.

The technology equipment industry is cyclical and has
experienced significant and extended downturns in the past, often in connection with, or in anticipation of, maturing product cycles, capital spending cycles and declines in general economic conditions. The cyclical nature of these markets has led
to significant imbalances in demand, inventory levels and production capacity. It has also accelerated the decrease of average selling prices per unit. The Company may experience periodic fluctuations in its financial results because of these or
other industry-wide



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conditions, as it intends over the next several years to derive its revenues from sales to the telecommunications and networking markets. Developments that
adversely affect the telecommunications or networking markets, including delays in traffic growth and changes in U.S. government regulation, could halt the Companys efforts to generate revenue or cause revenue growth to be slower than
anticipated from sales of electro-optic modulators, semi-conductors and related products. Reduced spending and technology investment by telecommunications companies may make it more difficult for the Companys products to gain market
acceptance. Such companies may be less willing to purchase new technology such as the Companys technology or invest in new technology development when they have reduced capital expenditure budgets.

The failure to compete successfully could harm the Companys business.

The Company faces competitive pressures from a variety of companies in its target markets. The telecom, datacom and consumer opto-electronics markets are highly competitive and the Company expects that domestic and
international competition will increase in these markets, due in part to deregulation, rapid technological advances, price erosion, changing customer preferences and evolving industry standards. Increased competition could result in significant
price competition, reduced revenues or lower profit margins. Many of the Companys competitors and potential competitors have or may have substantially greater research and product development capabilities, financial, scientific, marketing,
manufacturing and human resources, name recognition and experience than the Company. As a result, these competitors may:



| |  |  | succeed in developing products that are equal to or superior to the Companys products or that will achieve greater market acceptance than its products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | devote greater resources to developing, marketing or selling their products;
| | - |  | ----------------------------------------------------------------------------



| |  |  | respond more quickly to new or emerging technologies or scientific advances and changes in customer requirements, which could render the Companys technologies
or potential products obsolete;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | introduce products that make the continued development of the Companys potential products uneconomical;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | obtain patents that block or otherwise inhibit the Companys ability to develop and commercialize its potential products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | withstand price competition more successfully than the Company can;
| | - |  | -------------------------------------------------------------------



| |  |  | establish cooperative relationships among themselves or with third parties that enhance their ability to address the needs of prospective customers better than the
Company can; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | take advantage of acquisitions or other opportunities more readily than the Company can.
| | - |  | ----------------------------------------------------------------------------------------

Competitors may offer enhancements to existing products, or offer new products based on new technologies, industry standards or customer requirements,
that are available to customers on a more timely basis than comparable products from the Company or that have the potential to replace or provide lower cost alternatives to its products. The introduction of enhancements or new products by
competitors could render the Companys existing and future products obsolete or unmarketable. Each of these factors could have a material adverse effect on the Companys business, financial condition and results of operations.

The Companys strategy of growth through acquisition could harm its business.

It is the Companys intent to continue to grow through strategic acquisitions. Successful integration of newly acquired target companies may place a
significant burden on the Companys management and internal resources. The diversion of managements attention and any difficulties encountered in the transition and integration processes could harm the Companys business, financial
condition and operating results. In addition, the Company may be unable to execute its acquisition strategy, resulting in wasted resources and a failure to achieve anticipated growth.

The Company may be unable to obtain effective intellectual property protection for its potential products and technology.

Any intellectual property that the Company has or may acquire, license or develop in the future, may not provide meaningful competitive advantages. The Companys patents and patent applications, including those
it licenses, may be challenged by competitors, and the rights granted under such patents or patent applications may not provide meaningful proprietary protection. For example, there are patents held by third parties that relate to polymer materials
and electro-optic devices. These patents could be used as a basis to challenge the validity or limit the scope of the Companys patents or patent applications. A successful challenge to the validity or limitation of the scope of its patents or
patent applications could limit the Companys ability to commercialize the technology and, consequently, reduce revenues.

Moreover,
competitors may infringe the Companys patents or those that it licenses, or successfully avoid these patents through design innovation. To combat infringement or unauthorized use, the Company may need to resort to litigation, which can be
expensive and time-consuming and may not succeed in protecting its proprietary rights. In addition, in an infringement proceeding, a court may decide that the Companys patents or other intellectual property rights are not valid or are
unenforceable, or may refuse to stop the other party from using the intellectual property at issue on the ground that it is non-infringing. Policing unauthorized use of the Companys intellectual property is difficult and expensive, and the
Company may not be able to, or have the resources to, prevent misappropriation of its proprietary rights, particularly in countries where the laws may not protect these rights as fully as the laws of the United States.

The Company also relies on the law of trade secrets to protect unpatented technology and know-how. The Company tries to protect this technology and
know-how by limiting access to those employees, contractors and strategic partners with a need to know this information and by entering into confidentiality agreements with these parties. Any of these parties could breach the agreements and disclose
the Companys trade secrets or confidential information to competitors, or such competitors might learn of the information in other ways. Disclosure of any trade secret not protected by a patent could materially harm the Companys
business.



27



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The Company may be subject to patent infringement claims, which could result in substantial costs and liability and
prevent it from commercializing potential products.

Third parties may claim that the Companys potential products or related
technologies infringe their patents. Any patent infringement claims brought against the Company may cause it to incur significant expenses, divert the attention of management and key personnel from other business concerns and, if successfully
asserted, require the Company to pay substantial damages. In addition, as a result of a patent infringement suit, the Company may be forced to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a
patent covering a third partys intellectual property unless that party grants the Company rights to use its intellectual property. The Company may be unable to obtain these rights on terms acceptable to it, if at all. Even if the Company is
able to obtain rights to a third partys patented intellectual property, these rights may be non-exclusive, and therefore competitors may obtain access to the same intellectual property. Ultimately, the Company may be unable to commercialize
its potential products or may have to cease some of its business operations as a result of patent infringement claims, which could severely harm its business.

If the Companys potential products infringe the intellectual property rights of others, the Company may be required to indemnify customers for any damages they suffer. Third parties may assert infringement
claims against the Companys current or potential customers. These claims may require the Company to initiate or defend protracted and costly litigation on behalf of customers, regardless of the merits of these claims. If any of these claims
succeed, the Company may be forced to pay damages on behalf of these customers or may be required to obtain licenses for the products they use. If the Company cannot obtain all necessary licenses on commercially reasonable terms, it may be unable to
continue selling such products.

The technology that the Company licenses from various third parties may be subject to government rights and retained
rights of the originating research institution.

The Company licenses technology from various companies or research institutions,
such as the University of Washington. Many of these partners and licensors have obligations to government agencies or universities. Under their agreements, a government agency or university may obtain certain rights over the technology that the
Company has developed and licensed, including the right to require that a compulsory license be granted to one or more third parties selected by the government agency.

In addition, the Companys partners often retain certain rights under their licensing agreements, including the right to use the technology for noncommercial academic and research use, to publish general
scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether such partners limit their use of the technology to
these uses, and the Company could incur substantial expenses to enforce its rights to its licensed technology in the event of misuse.

If the Company
fails to develop and maintain the quality of its manufacturing processes, its operating results would be harmed.

The manufacture of
the Companys products is a multi-stage process that requires the use of high-quality materials and advanced manufacturing technologies. With respect to its polymer-based products, polymer-related device development and manufacturing must occur
in a highly controlled, clean environment to minimize particles and other yield- and quality-limiting contaminants. In spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause a substantial
percentage of a product in a lot to be defective. If the Company is not able to develop and continue to improve on its manufacturing processes or to maintain stringent quality controls, or if contamination problems arise, the Companys
operating results would be harmed.

The complexity of the Companys products may lead to errors, defects and bugs, which could result in the
necessity to redesign products and could negatively impact the Companys reputation with customers.

Products as complex as the
Companys products may contain errors, defects and bugs when first introduced or as new versions are released. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder
market acceptance of the products or result in a costly recall and could damage the Companys reputation and adversely affect its ability to retain existing customers and to attract new customers. In particular, certain of the Companys
products are customized or designed for integration into specific network systems. If, after the Company has incurred significant expenses in designing such products, the products experience defects or bugs, the Company may need to undertake a
redesign of the product, a process which may result in significant additional expenses.

The Company may also be required to make
significant expenditures of capital and resources to resolve such problems. There is no assurance that problems will not be found in new products after commencement of commercial production, despite testing by the Company, its suppliers or its
customers.

The Company could be exposed to significant product liability claims that could be time-consuming and costly and impair its ability to
obtain and maintain insurance coverage.

The Company may be subject to product liability claims if any of its potential products are
alleged to be defective or harmful. Product liability claims or other claims related to its potential products, regardless of their outcome, could require the Company to spend significant time and money in litigation, divert managements time
and attention from other business concerns, require it to pay significant damages, harm its reputation or hinder acceptance of its potential products. Any successful product liability claim may prevent the Company from obtaining adequate product
liability insurance in the future on commercially reasonable terms. Any inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could impair the Companys
ability to commercialize its products. In addition, certain of the Companys products are sold under warranties. The failure of the Companys products to meet the standards set forth in such warranties could result in significant expenses
to the Company.

If the Company fails to effectively manage its growth, its business could suffer.

Failure to manage growth of its operations could harm the Companys business. To date, a large number of the Companys activities and resources
have been directed at the research and development of its technologies and development of potential related products. The transition from research and development to a vendor of products requires effective planning and management. Additionally,
growth arising from the expected synergies from the merger with Lumera Corporation will require effective planning and management. Future expansion will be expensive and will likely strain management and other resources.



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In order to effectively manage growth, the Company must:



| |  |  | continue to develop an effective planning and management process to implement its business strategy;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | hire, train and integrate new personnel in all areas of its business; and
| | - |  | -------------------------------------------------------------------------



| |  |  | expand its facilities and increase capital investments.
| | - |  | -------------------------------------------------------

There is no assurance that the Company will be able to accomplish these tasks effectively or otherwise effectively manage its growth.

The Company is subject to regulatory compliance related to its operations.

The Company is
subject to various U.S. governmental regulations related to occupational safety and health, labor and business practices. Failure to comply with current or future regulations could result in the imposition of substantial fines, suspension of
production, alterations of its production processes, cessation of operations, or other actions, which could harm its business.

The Company may be
unable to export some of its potential products or technology to other countries, convey information about its technology to citizens of other countries or sell certain products commercially, if the products or technology are subject to United
States export or other regulations.

The Company is developing certain products that the Company believes the United States
government and other governments may be interested in using for military and information gathering or antiterrorism activities. United States government export regulations may restrict the Company from selling or exporting these potential products
into other countries, exporting its technology to those countries, conveying information about its technology to citizens of other countries or selling these potential products to commercial customers. The Company may be unable to obtain export
licenses for products or technology if necessary. The Company currently cannot assess whether national security concerns would affect its potential products and, if so, what procedures and policies it would have to adopt to comply with applicable
existing or future regulations.

The Company may incur liability arising from its use of hazardous materials.

The Companys business and its facilities are subject to a number of federal, state and local laws and regulations relating to the generation,
handling, treatment, storage and disposal of certain toxic or hazardous materials and waste products that are used or generated in its operations. Many of these environmental laws and regulations subject current or previous owners or occupiers of
land to liability for the costs of investigation, removal or remediation of hazardous materials. In addition, these laws and regulations typically impose liability regardless of whether the owner or occupier knew of, or was responsible for, the
presence of any hazardous materials and regardless of whether the actions that led to the presence were taken in compliance with the law. The Companys domestic facilities use various chemicals in manufacturing processes which may be toxic and
covered by various environmental controls. These hazardous materials may be stored on site. The waste created by use of these materials is transported off-site by an unaffiliated waste hauler. Many environmental laws and regulations require
generators of waste to take remedial actions at an off-site disposal location even if the disposal was conducted lawfully. The requirements of these laws and regulations are complex, change frequently and could become more stringent in the future.
Failure to comply with current or future environmental laws and regulations could result in the imposition of substantial fines, suspension of production, alteration of production processes, cessation of operations or other actions, which could
severely harm the Companys business.

The Companys business, financial condition and operating results would be harmed if it does not
achieve anticipated revenues.

From time to time, in response to anticipated long lead times to obtain inventory and materials from
outside contract manufacturers, suppliers and foundries, the Company may need to order materials in advance of anticipated customer demand. This advance ordering may result in excess inventory levels or unanticipated inventory write-downs if
expected orders fail to materialize, or other factors render the Companys products less marketable. If the Company is forced to hold excess inventory or incurs unanticipated inventory write-downs, its financial condition and operating results
could be materially harmed.

The Companys expense levels are relatively fixed and are based on its expectations of future revenues.
The Company will have limited ability to reduce expenses quickly in response to any revenue shortfalls. Changes to production volumes and impact of overhead absorption may result in a decline in its financial condition or liquidity.

The industry and markets in which the Company competes are subject to consolidation, which may result in stronger competitors, fewer customers and reduced demand.

There has been industry consolidation among communications IC companies, network equipment companies and telecommunications
companies in the past. This consolidation is expected to continue as companies attempt to strengthen or hold their positions in evolving markets. Consolidation may result in stronger competitors, fewer customers and reduced demand, which in turn
could have a material adverse effect on the Companys business, operating results, and financial condition.

The Companys operating
results are subject to fluctuations because it has international sales.

International sales account for a large portion of the
Companys revenues and may account for an increasing portion of future revenues. The revenues derived from international sales may be subject to certain risks, including:



| |  |  | foreign currency exchange fluctuations;
| | - |  | ---------------------------------------



| |  |  | changes in regulatory requirements;
| | - |  | -----------------------------------



| |  |  | tariffs and other barriers;
| | - |  | ---------------------------



| |  |  | timing and availability of export licenses;
| | - |  | -------------------------------------------



| |  |  | political and economic instability;
| | - |  | -----------------------------------



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| |  |  | difficulties in accounts receivable collections;
| | - |  | ------------------------------------------------



| |  |  | difficulties in staffing and managing foreign operations;
| | - |  | ---------------------------------------------------------



| |  |  | difficulties in managing distributors;
| | - |  | --------------------------------------



| |  |  | difficulties in obtaining governmental approvals for communications and other products;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | reduced or uncertain protection for intellectual property rights in some countries;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | longer payment cycles to collect accounts receivable in some countries;
| | - |  | -----------------------------------------------------------------------



| |  |  | the burden of complying with a wide variety of complex foreign laws and treaties; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences.
| | - |  | -------------------------------------

The Company is subject to risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. The Company cannot predict whether quotas, duties, taxes or other charges or
restrictions upon the importation or exportation of its products will be implemented by the United States or other countries.

Because
sales of the Companys products have been denominated to date primarily in United States dollars, increases in the value of the United States dollar could increase the price of the Companys products so that they become relatively more
expensive to customers in the local currency of a particular country, leading to a reduction in sales and profitability in that country. Future international activity may result in increased foreign currency denominated sales. Gains and losses on
the conversion to United States dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in the Companys results of operations.

Some customer purchase orders and agreements are governed by foreign laws, which may differ significantly from laws in the United States. As a result,
the Companys ability to enforce its rights under such agreements may be limited compared with its ability to enforce its rights under agreements governed by laws in the United States.

We have never paid dividends on our capital stock, and we do not anticipate paying cash dividends for at least the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our common stock for at least the
foreseeable future. We currently intend to retain all available funds and future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of
potential gain for at least the foreseeable future.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None



|ITEM 6. | EXHIBITS
|------- | --------



|(a) | Exhibits
|--- | --------



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|              |  |                                                                                                                                                                                                                                                                                                            
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                
|3.1           |  | Form of Amended and Restated Certificate of Incorporation of the Registrant. Filed previously as Annex C to the Registrants Registration Statement on Form S-4 filed on September 8,
2008, SEC File No. 333-153362 and is incorporated herein by reference.                                               
|              | 
|3.2           |  | Bylaws of the Registrant. Filed previously as Annex D to the Registrants Registration Statement on Form S-4 filed on September 8, 2008, SEC File No. 333-153362 and is incorporated
herein by reference.                                                                                                  
|              | 
|4.1           |  | Warrant issued to Silicon Valley Bank on January 21, 2009. Filed previously as Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on January 29, 2008, and is incorporated
herein by reference.                                                                                              
|              | 
|10.1*         |  | Employment Agreement by and between the Company and Dr. Katz, dated as of January 26, 2009. Filed previously as Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on
February 2, 2009 and is incorporated herein by reference.                                                             
|              | 
|10.2*         |  | Form of Employment Agreement to be entered into between the Company and its executive officers. Filed previously as Exhibit 10.1 to the Registrants Current Report on 8-K filed on
February 11, 2009 and is incorporated herein by reference.                                                             
|              | 
|10.3*         |  | Form of Incentive Stock Option Award Agreement. Filed previously as Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on March 17, 2009 and is incorporated herein by
reference.                                                                                                           
|              | 
|10.4*         |  | Form of Nonstatutory Stock Option Award Agreement. Filed previously as Exhibit 10.2 to the Registrants Current Report on Form 8-K filed on March 17, 2009 and is incorporated herein by
reference.                                                                                                        
|              | 
|10.5          |  | Unconditional Guaranty between the Company and Silicon Valley Bank, dated as of January 21, 2009. Filed previously as Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on
January 29, 2009 and is incorporated herein by reference.                                                       
|              | 
|10.6          |  | Default Waiver and Fourth Amendment to Loan and Security Agreement between GigOptix LLC and Silicon Valley Bank, effective as of December 31, 2008. Filed previously as Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed on January 29, 2009 and is incorporated herein by reference.     
|              | 
|10.7          |  | Loan and Security Agreement, dated as of October 5, 2007, by and between GigOptix LLC and Silicon Valley Bank. Filed previously as Exhibit 10.3 to Registrants Current Report on Form 8-K
filed on January 29, 2009 and is incorporated herein by reference.                                              
|              | 
|10.8          |  | First Amendment to Loan and Security Agreement, dated as of August 21, 2008, by and between GigOptix LLC and Silicon Valley Bank. Filed previously as Exhibit 10.4 to the Registrants
Current Report on Form 8-K filed on January 29, 2009 and is incorporated herein by reference.                       
|              | 
|10.9          |  | Default Waiver and Second Amendment to Loan and Security Agreement, dated as of September 26, 2008, by and between GigOptix LLC and Silicon Valley Bank. Filed previously as Exhibit 10.5 to
the Registrants Current Report on Form 8-K filed on January 29, 2009 and is incorporated herein by reference.
|              | 
|10.10         |  | Third Amendment to Loan and Security Agreement, dated as of October 27, 2008, by and between GigOptix LLC and Silicon Valley Bank. Filed previously as Exhibit 10.6 to the Registrants
Current Report on Form 8-K filed on January 29, 2009 and is incorporated herein by reference.                      
|              | 
|10.11         |  | Plexera Asset Purchase Agreement, dated as of February 17, 2009. Previously filed as Exhibit 10.37 to the Registrants Annual Report on Form 10-K filed on March 31, 2009, and is
incorporated herein by reference.                                                                                        
|              | 
|10.12         |  | Fifth Amendment to Loan and Security Agreement between GigOptix LLC and Silicon Valley Bank, dated as of February 28, 2009. Previously filed as Exhibit 10.38 to the Registrants Annual
Report on Form 10-K filed on March 31, 2009, and is incorporated herein by reference.                             
|              | 
|31.1          |  | Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                
|              | 
|31.2          |  | Acting Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 Of the Sarbanes-Oxley Act of
2002.                                                                                                                         
|              | 
|32.1          |  | Chief Executive Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                          
|              | 
|32.2          |  | Acting Chief Financial Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                   



|* | Denotes management contract or compensatory plan or arrangement.
|- | ----------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                                                                          
|------------------ |  | -------------------------------------------------------------------------
|                   |  | GIGOPTIX, INC.                                                           
|                   | 
|Date: May 20, 2009 |  | /s/ Avishay Katz                                                         
|                   |  | Dr. Avi (Avishay) Katz                                                   
|                   |  | President, Chief Executive Officer and Chairman of the Board of Directors
|                   | 
|Date: May 20, 2009 |  | /s/ Dawn Casterson                                                       
|                   |  | Dawn Casterson                                                           
|                   |  | Acting Chief Financial Officer                                           



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EXHIBIT INDEX

The following documents are filed:



|              |  |                                                                                                                                                                                         
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                             
|31.1          |  | Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.             
|              | 
|31.2          |  | Acting Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.      
|              | 
|32.1          |  | Chief Executive Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.       
|              | 
|32.2          |  | Acting Chief Financial Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.



33